The dorm of a new era

Private student accommodation occupies its own specific niche in the PRS market. Poland has an abundance of universities and colleges, many of which are attractive to foreign students. According to Statistics Poland, over the 2020/2021 academic year there were just over 1.2 mln students in Poland, including 85,000 from abroad. However, according to a recent report by CBRE, only one in ten students will find a place in student halls and in most cases those are publicly owned. So it’s very much a case of: if you build them, they will come. “Currently, in Poland there are 10,000 places in private student residences, which represents around 7.5 pct of the total supply in the country – and this reveals how tiny the share of the market the private segment takes up. Over the last few years, it has exhibited a high, two-figure growth rate; but then again, it has started from a very low base,” explains Katarzyna Tencza, the associate director for investment and hospitality at Walter Herz.

When it comes to the projects that are under construction or at an advanced planning stage, CBRE estimates that over the next two or three years 3,500 to 5,000 beds in student halls will come onto the market. “This is quite a young sector in Poland. The number of beds in modern student residences divided by the total number of students hovers between 1 pct and 5 pct, depending on the city. This is significantly lower than in Western Europe’s main academic centres, where the same number is in the teens or even higher than 20 pct,” admits Bartosz Cisło, an associate for corporate finance and valuation at Savills.

“I think Poland has a brilliant future ahead of it when it comes to student accommodation. Unlike in other CEE countries, investors don’t just have to concentrate on the capital city. There are several cities in Poland where investing in student apartments are bound to pay off handsomely. When you look at it from the point of view of an investor, the returns are higher than in Western Europe – and that’s why it’s an attractive place for them to invest in,” comments Tom Leach, a board member of Leach & McGuire.

A plethora of investors

The Polish market for student housing still seems to in its infancy, even though investors have clearly been active for some years. The market is also very dispersed. Six student residences are owned by Student Depot (2,400 beds). The chain was sold by Oaktree Capital Management in 2019 to Griffin Real Estate (now Griffin Capital Partners) and Kajima Europe. Even though it only operates on a small scale in Poland, international operator BaseCamp already has two properties in Łódź and one in Wrocław. (It also operates three centres across Germany and Denmark.) Younig, which is a company with 20 locations across Europe, has one student residence in Poland – in Gdańsk. Recently, Milestone, a company with twelve properties across Europe, also entered the fray and is to manage a student residence on ul. Prusa in Warsaw, which has been bought by Nuveen Real Estate and Value One. In 2021, yet another operator entered the market: Zeitraum, a subsidiary of Czech investor Zeitgeist, which now owns student residences in Warsaw and Kraków and is planning several other projects. The first of these is a serviced-apartment project in Warsaw, which is also to be marketed to students. Of course, this doesn’t exhaust the list of private projects now on offer to students in Poland. Other examples include Trio in Kraków (Catella Polska purchased the three-building complex with a hall of residence in 2019), Collegia in Gdańsk (developed by US-based Silver Rock Investment) and Livinnx in Kraków (which is also planning another student residence in Warsaw’s Praga district).

Students also sometimes rent digs in standard PRS projects, where they are attracted by the same features as other tenants. These include prices comparable to those offered by private landlords as well as clear tenancy rules and additional services. “Across Resi4Rent’s portfolio, which is located in Gdańsk, Łódź, Poznań, Warsaw and Wrocław, those aged between 18 and 24 make up 15 pct of the tenants – and many of these include students,” reveals Alicja Kościesza, the director of sales and marketing at Resi4Rent. “It’s becoming more common to find more mature students among our tenants, who combine work with their studies and are looking for peace and quiet as well as comfortable living conditions. Foreign students make up another group, since they often come from countries where the institutional rental segment is more developed and, as a result, is seen by the tenant as safer and more attractive,” she explains.

Student premium

The cost of living in publicly-owned student accommodation in Poland on average comes to PLN 500 per month, according to figures from CBRE, while the cost of private student accommodation is almost PLN 1,200, which is comparable to the price of renting on the open market. Naturally, the price varies according to the standard, while it’s also obvious that on the private market prices vary to a wide extent depending on the additional features offered.

The greatest advantage offered by student halls seems to be that they aren’t just made up of rooms, but they also have large common areas where students can socialise and get to know one another. These include study areas, meeting rooms and even music rooms with instruments – such as in Collegia in Gdańsk. “What students most of all appreciate is the comfort. They want to have good living conditions, so they value a high finishing standard, private bathrooms and kitchenettes. Quite often it’s their parents who make the final decision on where they live – and they pay attention to such questions as the security. For them, 24-hour surveillance and monitored access are important additional benefits that give them peace of mind,” points out Marek Obuchowicz, the partner at Griffin Capital Partners responsible for the development of its Student Depot platform. “Our residents value the opportunity to use our gyms and our chillout space, where they can relax after an entire day of lectures or a stressful exam. They can also use our co-working space. We encourage the students to pursue their passions, and so Student Depot residences come with multimedia rooms where they can watch films or listen to music, and there are even musical corners where they can try out – for example – playing the ukulele,” he says.

“The solutions that worked well in our Czech student residences are also being applied successfully in Poland. We want to break away from the myth of student accommodation being low-standard, which in Poland you can endlessly hear horror stories about,” insists Zdena Noack, the managing director of Zeitraum. “Our residents appreciate not only how our rooms are furnished, but also all of our entire recreational facilities. We make sure that our properties have such facilities as self-service laundries, common kitchens, study rooms, bicycle storage facilities, gyms and multimedia rooms. It’s all for one price under a flexible contract with the operator,” she adds.

Foreign students also value being able to communicate easily with the staff (they should all know foreign languages) and being led through the leasing formalities without additional problems. The flexibility of the contracts can be viewed as another benefit, as is especially the case when the operators have several buildings in different locations. “One benefit of the subscription model is that it’s possible to move to another property under the same contract,” points out Alicja Kościesza. The chain even allows students to leave Poland for somewhere else in Europe if they are taking part in a foreign exchange programme. Each of Milestone’s residents, for example, can take advantage of one week’s free accommodation in any of the company’s European properties, which is an excellent option for those looking to take a holiday.

Attractive returns as students return

When it comes to how profitable it is to invest in student accommodation in Poland, the rates of return on prime assets are currently at around 5.25 pct. By comparison, in large German cities the figure is only as high as 3.3 pct, in Amsterdam, Copenhagen and London, the rate is around 3.5 pct, while in Paris its 3.7 pct and in Madrid 4.5 pct. According to Bartosz Cisło of Savills, even slightly higher returns can be found in Lisbon and Seville. “For student accommodation, the returns on the capital invested are slightly higher than for PRS projects. And this means that student homes are an attractive investment product. In certain cases, Catella tries to invest in projects that include both rental apartments and student residential buildings,” comments Dariusz Węglicki, the Poland country manager of Catella Residential Investment Management.

In the wake of the pandemic, students started studying online en masse and, to a certain extent, have continued to do so. The circumstances we live in remain unpredictable. Nevertheless, private student accommodation is once again filling up. “Students have been returning because they are fed up with distance learning and living with their parents – and this is especially the case when they come from small towns. In Kraków, for example, they can both work and study, so at the moment all the rooms in our student residences there are 100 pct rented out,” says Dariusz Węglicki.

“Renting out private student accommodation is still a market with a future, in spite of the ever-lengthening pandemic,” claims Marek Obuchowicz. “The demand is stable and the market has low saturation rates, which will support the stable development of our portfolio in line with our plans. These entail adding at least 1,000 beds a year to the academic centres of the largest cities in Poland. Next year we are planning to open a new student hall in Kraków and build other centres in Łódź and Warsaw. We are also actively looking for sites, projects and existing buildings in smaller towns and cities, since they quite often have large academic communities,” he adds.

A rosy future, but with caveats

According to the ‘European Student Housing’ report published by Savills, investment in private student accommodation in 2021 could amount to around EUR 8.4 bln, while in 2022 the volume could rise to EUR 9.5 bln. “Investors in Poland are now buying projects at different stages of development, including centres in operation, buildings that require reconstruction work and empty plots,” points out Bartosz Cisło.

As is currently the case in the booming residential apartment sector, investors and developers are finding themselves unable to keep up with the demand for student accommodation. The easiest option might be to buy buildings that are already finished or that have just been developed, since it’s difficult to find sites that have good access to colleges, stores and recreational facilities. On top of that, the PRS market has been competing for the same sites, even though student residences can sometimes be built on land that has been designated under cities’ spatial plans for service use and not for apartments. “The difficulties are, above all, to do with finding suitable investment land and buildings, particularly when apartment developers are literally fighting over each scrap of land. Investors in student residences can’t compete with them or offer such high prices for these sites given the lower returns on their projects. To make matters worse, the competition is now over plots that not so long ago were considered unattractive by residential developers. The massive demand is even encouraging developers to buy commercial plots for building apartments with 23 pct VAT,” points out Katarzyna Tencza.

The development of student accommodation could also be held back by issues with the availability of materials and labour as well as by bureaucratic obstacles, the growth in salaries and the rising prices of construction materials. “Inflation, and especially the rapid growth in energy prices, will negatively affect operators’ short-term profitability. Over the longer term, the rents students pay are going to have to increase to cover the rising costs of utilities,” admits Zdena Noack. “Looking at the institutional rental sector through an investor’s eyes, you have to bear in mind that the New Polish Deal tax reforms will also, unfortunately, reduce the profitability of such investment in Poland. Despite all of this, Poland can still offer foreign investors attractive rates of return,” she argues.