Halls of precedence

The numbers speak the loudest about the huge scale of these projects. In March, Mapletree Investment of Singapore bought a student accommodation portfolio in the UK for GBP 417 mln – more than EUR 0.5 bln. Canadian pension fund CPPIB bought student halls for GBP 1.1 bln (over EUR 1.87 bln) also in Britain but a year earlier, while Goldman Sachs and Greystar acquired a portfolio from UK developer Knightsbridge Student Housing, which is supported by Oaktree Capital Management, for GBP 500 mln (EUR 620 mln). Last year the entire UK student housing sector attracted investment worth as much as GBP 5.8 bln (EUR 7.25 bln) – more than all the commercial real estate transactions in Poland and the Czech Republic put together. Specialised British REITs exclusively involved in student housing are well established players on the London Stock Exchange. It should be noted that the UK market, with its base of 524,000 beds for students, is the second largest market in the world, with only the US student housing market being bigger. The sector is worth an estimated USD 200 bln globally.

Product resistant to crisis

What makes student accommodation so attractive to investors? According to Alexandra Gumuchian of the student investment and development department at Savills’ London office, there are three things that make student housing especially attractive. Firstly, such properties can be used to diversify investment portfolios because they are seen as assets that are not influenced by the same business cycles as other commercial properties. Furthermore, they seem to be virtually crisis-resistant. “Taking Spain as a recent example, when the latest economic crisis hit in 2008 and unemployment rose, enrolment in higher education increased as people chose to either remain in higher education for longer or go back and gain new qualifications,” explains Alexandra Gumuchian. Secondly, rents have exhibited steady growth in this segment. “Last year, the UK underwent app. 3 pct rental growth. However, in a number of European markets, where purpose-built student accommodation is significantly undersupplied – for example in certain university cities in Germany and Austria – rents increased by almost 5 pct,” explains Alexandra Gumuchian. Finally, it is also a relatively secure investment “Rents are generally paid in advance and guaranteed by students’ parents, who typically want to ensure that their children successfully complete their studies. The use of a good student accommodation manager guarantees that the investor’s building is well run, that deposits are paid and rents are collected on time,” adds Alexandra Gumuchian.

The huge capital coming from the USA, Canada and the Far East into the British market has had a definite impact on prices. Yields have decreased to app. 5 pct for the best properties in London. These are simply too low for many investors, who are now looking more and more eagerly towards continental Europe. “For now, the majority of the interest outside of the UK is directed towards the French, German, Dutch and Spanish markets. However, other European countries are increasingly being analysed by investors, including Denmark, Italy and Poland. The common theme in Europe is the chronic undersupply of purpose-built student accommodation and the lack of investment product,” claims Alexandra Gumuchian.

Investors with ambitious plans

Griffin Real Estate is trying to create such a product in our part of Europe. The chain, under the name of Student Depot, which is managed by the company, currently comprises four complexes: two in Lublin, one in Poznań and one in Łódź. This amounts to a total of 1,200 beds to begin with, but another four facilities with 2,500 beds – in Poznań, Kraków, Warsaw and Wrocław – should be completed by October 2018. “Our goal is to create a portfolio of facilities with app. 8,000 beds in the main student cities in Poland,” reveals Przemysław Krych, the president of the board of Griffin Real Estate. He also insists that this is a profitable business that provides the company with an above-average return on its investment. What does this mean? “Much more than 20 pct,” says Przemysław Krych.

The head of Griffin explains that the possible sale of the assets will involve offering the entire chain of student halls together with the Student Depot company that manages them. “Many market players say that this is an interesting sector for them and they will be developing here; however, so far we have not seen anybody prepared to do this in an organised and institutional way. A few local developers are trying to become active in the sector, but it is mostly us who have already bought or are just buying their products,” says Przemysław Krych. The competition, which is nowhere to be seen at this time, could soon emerge. “We want to develop our Dwell Well chain of student halls in the largest student cities, which apart from Warsaw include Kraków, Gdańsk, Wrocław, Lublin, Rzeszów and Poznań,” says Leszek Stankiewicz, the vice-president of the board of Warsaw-based developer Budner. So far the company is applying for a building permit for a student hall project in Warsaw’s Słodowiec district and is preparing the design of a building to be constructed in the city’s Grochów district. In a recent interview with ‘Eurobuild CEE’, Gregor Sobisch, the president of the company, emphasised that such projects need to be developed quickly, over the next five years. The company clearly wants to have a good entry position in terms of the future competition on the market, which is now emerging. “The construction work is to start this year on both projects and we will be able to offer 800 new beds in new halls in Warsaw by 2018,” says Leszek Stankiewicz.

Fewer Polish, more foreign

But the question is, will they attract tenants? Ten years ago there were 1.95 students in Poland, now there are only 1.4 mln. This constitutes an average decline of app. 50,000–60,000 per year. And yet as it turns out this seemingly worrying demographic news has left investors’ feathers unruffled. “In Lublin we have two student halls and 90 pct of our students are enrolled at the medical university, but most of them are from Taiwan. Meanwhile, in Łódź the majority are medical students from Scandinavian and Mediterranean countries. This is due to the fact that Poland is a very attractive place for foreign students. Medicine is the field that attracts them most. It is cheaper here, there is a very good teaching base and our diplomas are recognised worldwide,” explains Przemysław Krych.

More and more foreign students are coming to Poland every year. Over the last ten years the number has increased from 10,000 to 56,000. According to the Perspektywy educational foundation, there will be at least 100,000 studying here by 2020. “Taking into consideration the fact that foreign students are the majority of our clients, these numbers are the most important for us,” explains Andrzej Cytrycki of Student Depot.

According to REAS, there are currently app. 137,000 beds in student halls in Poland. “The base is large, but in terms of the number of students it is still not enough. Besides, the requirements for students applying for a place in state accommodation are much more restrictive compared to the private sector. In our experience, students who come from abroad are looking for a significantly higher standard,” explains Andrzej Cytrycki. Przemysław Krych of Griffin emphasises that in terms of acquisitions they are only interested in facilities where it is possible to have separate rooms including a bathroom and a kitchenette. “This is the only standard that rents well and has a good price,” explains Przemysław Krych. Apart from building new facilities, Griffin also buys older accommodation, such as property it has purchased from Orbis in Poznań, and then upgrades its standard. Admittedly, there are still double and triple rooms in Griffin’s properties, but the company has been converting them into luxury single bed studios, which are easier to rent.

State infrastructure grinds to a halt

So far state universities have been much of a muchness when it comes to improving the standard of their student facilities. When a subsidiary of French company Bouygues signed its first Polish public private partnership contract, with Collegium Medicum of the Jagiellonian University in Kraków for the redevelopment of student halls, it might have seemed that this would kick-start such projects by establishing a notable precedent. According to the agreement, under which one student hall has already been refurbished and others are to be re-opened this year, the developer will eventually redevelop, furnish and operate three buildings for a period of 25 years in exchange for a monthly fee to be paid by the university for the duration of the contract. Meanwhile, the university can benefit from renting the accommodation to students and maintaining its own price policy, which is important for the university. “This would not be the most beneficial model for us. We would rather have the operator of the building as our partner” explains the vice-chancellor of the Cardinal Wyszyński University in Warsaw. At this moment the university is still in talks with private partners for the development of one student hall, but it has yet to decide whether to follow the PPP or some other business model. “It needs to be stressed that PPPs require a lengthy process and are difficult to realise. It is quite common for the PPP agreement to be signed after the completion of a public order in the form of a competitive dialogue,” explains Michał Bisiorek, a lawyer and partner of the BCLA Bisiorek, Cieśliński, Adamczewska i Wspólnicy law firm. As a result, contrary to the hopes the ministry of science and higher education expressed at that time for the signing of the first PPP contract in this segment, there has been no trace of any other contracts being signed so far.

Poland the regional leader

According to Savills, a foreign operator is planning to build student accommodation with app. 500 beds in Budapest. However, nothing like this has been built so far. “As far as we know there are no private investors in Hungary with student housing related assets or projects. This sector hasn’t been developed yet, so we don’t really consider it a separate sector,” admits Barnabás Tóth, the head of marketing at CBRE in Budapest. The situation is similar in Russia. “Private investment activity still hasn’t arrived yet. Student campuses and all the issues related to them are administrated by high schools and universities,” explains Mikhail Yakubov, the head of the development consultancy consulting at JLL in Russia and the CIS. He also adds that the main reason why the segment is underrated in Russia is due to the lack of experience in this sphere and real case surveys for the domestic market.

So what lies ahead for the student rental segment in Central and Eastern Europe, particularly in Poland? Alexandra Gumuchian of Savills’ London office believes that development will certainly take place, even though it will not be as rapid as in other western countries, such as France, Germany and the Netherlands. However, it should take root more quickly in Poland than in the other CEE countries. “At present, only Griffin and Bouygues have opened student accommodation, but we are seeing growing interest in Poland,” says Alexandra Gumuchian. Much will depend on the universities themselves. According to a survey carried out by the ‘Daily Telegraph’ last year, studying in Poland costs about a quarter of the cost of studying in England, including the accommodation and living costs. “One important factor will be how Polish universities tailor their courses to the international student market by, for example, offering more courses in English,” believes Alexandra Gumuchian.