Investing in European Student Housing

domestic students

large student share

anti-cyclical

student housing shortage

Europe

students attractive

university ranking

top destination

the bologna process

knowledge

housing

future

asian students

analyses

global prosperity

domestic

best university

investment

education

student mobility

foreign

student housing market

Netherlands De Beek 18 3871 MS Hoevelaken T +31 33 750 47 50 E reim@bouwfonds.nl www.bouwfondsreim.nl

Schiphol Boulevard 349 1118 BJ Amsterdam Schiphol T +31 20 206 66 03 E reim@bouwfonds.nl www.bouwfondsreim.nl

www.bouwfondsreim.com

Germany

France

Potsdamer StraĂ&#x;e 58 D 10785 Berlin T +49 30 59 00 9760 E reim@bouwfonds.de www.bouwfondsreim.de

6 avenue Franklin Roosevelt F 75008 Paris T +33 175 579 020 E om@bouwfonds.fr www.bouwfondsreim.fr

growing demand Investing in European Student Housing Report

An outline of the dynamics, characteristics, trends, opportunities and risk/return ratios in a largely neglected real estate niche, with a focus on France, Germany, the Netherlands and the United Kingdom.

Investing in European Student Housing Report

Report Investing in European Student Housing

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Report Investing in European Student Housing

Content Preface Summary

6 7

1. Demand for student housing is stable

9

1.1 Domestic enrolment is peaking in the four European markets reviewed 1.2 The four markets reviewed are expected to benefit from international trends in higher education 1.3 Europe is a prime destination for students from outside Europe

10

2. Shortage in supply of student housing is expected to persist 2.1 Shortages vary between cities and are both quantitative and qualitative in nature 2.2 Student housing is a highly fragmented market with major differences between countries

3. Students can afford to rent and tend to be reliable tenants 3.1 Students draw income from a variety of sources 3.2 Housing typically consumes

24 24 27

30 30 33

4. Students housing appears to meet key investment criteria 4.1 Student housing represents an investment market of an attractive potential size 4.2 Student housing offers high yields for a sound risk profile 4.3 Student housing represents an anti-cyclical investment category 4.4 Student housing offers ample scope for investor exits

5. Where to invest

34 34 36 38 39

40

5.1 European regional residential attractiveness rating 5.2 Regional European university rating 5.3 Liquidity (size) of the student market 5.4 Conclusion

Appendix

40 41 42 42

44

Appendix 1: Explanation of assumed growth rates for students Appendix 2: Filter technique for determining the categories Appendix 3: Bouwfonds REIM Regional University Ranking Appendix 4: Investible universe

April, 2013

15 16

44 47 50 50

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Preface Institutional investors have been hard-pressed, ever since the financial crisis erupted in 2007/8, to find the attractive investment propositions they need to fill their portfolio asset mix. Stock markets have experienced violent fluctuations, while returns from fixed-interest investments have been paltry due to persistently low interest rates. Real estate is yet another asset class that is in the doldrums, with occupancy rates in commercial real estate hit by a combination of economic decline and the ICT-enabled trends of working and shopping from ‘home’.

In this climate, we are witnessing increasing interest in the United Kingdom, but also in continental Europe, in a hitherto largely neglected niche of the real estate market: student housing. In view of Bouwfonds REIM’s positive experience with its investments in this segment to date, we would like to give our clients a ‘tour d’horizon’ of this perhaps unfamiliar asset class, and explain why we believe that selected investment in this market, based on thorough research of opportunities and risks, can provide a valuable addition to the real estate component in investment portfolios.

The report focuses on France, Germany and the Netherlands - being the core markets of our Bouwfonds European Residential Fund - and the United Kingdom, as this is the only country in Europe with a liquid student housing investment market.

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Report Investing in European Student Housing

This report concludes with a top-down analysis of the best European student housing cities in which to invest. Interestingly, because our methodology values a strong local residential market, the ranking may contrast with other studies. United Kingdom and Dutch regions are generally attractive due to the presence of both top universities and a absolute large student population. French and German regions, on the other hand, are mainly attractive because of their relatively large student populations.

Michiel Dubois Bouwfonds REIM Managing Director Residential Real Estate

Student housing is one of the few segments of the real estate market expected to see stable demand.

Summary The general investment characteristics of student housing are attractive compared with other segments of the real estate market available to investors: • Student housing offers attractive yields with a sound risk profile, which results in a class of real estate that can clearly add value to an existing portfolio.

• The market is sizable and anti-cyclical, and underpinned by continued strong demand as the total number of students worldwide is expected to increase in the years ahead, despite a decline in the 15- to 25-year age group in many countries: - Increasing numbers of young people understand that their future prosperity depends on having the best possible educational qualifications: in the first decade of this century, the number of students in formal higher (or ‘tertiary’) education rose by 77% to 175 million.

- Students are also increasingly travelling abroad to get the education they need; education has become a global market. This is an important trend for Europe, where a small reduction in ‘domestic’ enrolment due to demographic trends is largely balanced by a growing influx of foreign students, notably from Asia, who are attracted to Europe’s high average academic standards, its many

Master’s degree programmes taught in English, and its historical and cultural environment.

- Students tend to be reliable tenants because of the range and nature of funds they can draw from – including financial support from their parents and grants and low-interest loans from governments.

- While policy changes by cash-strapped governments may adversely affect enrolment numbers in some countries, early findings suggest young people are not being deterred from seeking higher education when tuition fees are increased: it appears that they either pay up or move abroad.

• While the stock of accommodation available to students varies from city to city, there is a noticeable overall shortage, both quantitative and qualitative, in the four countries we researched (the Netherlands, the United Kingdom, Germany and France). Prime cities to invest in are the capitals of these countries, as well as selected ‘secondary’ centres such as Lille, Munich and Manchester.

• Student housing real estate generally allows for sufficient liquidity, also resulting from alternative exit strategies.

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1. Demand for student housing is stable This chapter looks at the demand for student accommodation in the four European markets which are the focus of this report: France, Germany, the Netherlands and the United Kingdom. While enrolment in higher education in these four countries by domestic vs. foreign students will be discussed separately, both are driven by the tremendous changes taking place in the world of education as a result of the forces of globalisation. Over the past two decades, significant increases in prosperity in many parts of the world, the increasing participation of women and overall population growth have combined to trigger a ‘run’ on higher (or ‘tertiary’) education across the globe. According to UNESCO, a total of 177 million students worldwide were enrolled in formal higher education in 2010, a growth of 77% since 2000.

Underlying this trend is the acute awareness of young people and their parents and governments alike that knowledge is the key to individual and collective prosperity. Particularly in Europe, where populations are ageing, future economic growth will increasingly depend on growth in productivity driven by technological advances, a developement which crucially depends on higher education (Figure 1).

Analyses reveal that the expected development of enrolment numbers in higher education will vary across different regions: in the four European countries under review, domestic enrolment will decrease slightly (except in France) up to 2025, but all of these countries can expect continued growth in the influx of foreign students during this

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Report Investing in European Student Housing

period – also, increasingly, from outside Europe.

Specifically, if we combine our outlook for domestic and foreign students, we estimate that the total number of students in Germany, France, the Netherlands and the United Kingdom will increase by 3.3% between 2011 and 2025, or 0.2% annually (Figure 2). This makes student housing one of the very few real estate niches that will benefit from stable demand in the coming decades.

With the help of demographic models, it is possible to forecast future student numbers in detail. Some factors, such as the labour market and regulatory systems, will of course also have an impact, but this is difficult to include in our longer term models. Although we will mention the main trends affecting the student housing market, they have only been included in our forecasts to a limited extent.

Growth in global prosperity has expanded people’s opportunities to further their education.

Figure 1: Relation between education and prosperity

SCHOOL LIFE EXPECTANCY (YEARS)

Sources: Oxford Economics and Unesco, 2012

22

20

New Zealand

Australia R = 0.73279

18 United States the Netherlands Spain United Kingdom Sweden France Japan Poland

Argentina 16

14

Norway

Switzerland

Mexico

12 Ghana India 10 0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

GDP PER CAPITA IN 2012 ($)

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1.1 Domestic enrolment is peaking in the four European markets reviewed

Domestic enrolment is determined by three key factors: • Demographics • Labour market prospects and student population in higher (‘tertiary’) education • Government policy.

The main target group for universities is without doubt the domestic student, given that 80-90% of all students enrolled in higher (‘tertiary’) education originate from their home country. Overall, we expect the number of domestic students to stabilise or to decline slightly in the years ahead as a result of the demographic decline in 15-25 year olds. Only France will experience modest continued growth, due to a more positive demographic outlook. For a more detailed explanation for each country, please see Appendix 1.1.

Demographics Given the predominance of domestic students in any nation’s student population in higher (‘tertiary’) education, demographics are the most important determining factor for future growth in student housing. The number of people aged between 15 and 25 has a direct effect on the number of

Figure 2: Outlook in terms of total number of students Source: Bouwfonds REIM Research, 2012 9,000,000 Germany

8,000,000

France

7,000,000

United Kingdom 6,000,000

the Netherlands

5,000,000

Total

4,000,000 3,000,000 2,000,000 1,000,000 0 2000

2005

2010

2015

2020

2025

Figure 3: Number of 15-25 year olds Source: Eurostat, 2012 10,000,000 Germany

9,000,000

France

8,000,000

United Kingdom 7,000,000

the Netherlands

6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 2010

10

2015

2020

2025

Report Investing in European Student Housing

2030

2035

2040

competition, more young people will opt for tertiary education to secure their own future. Domestic and foreign students will, more than ever, be motivated to opt for the best universities at home or abroad to escape poverty and improve their chances in the labour market.

domestic students. Figure 3 illustrates the future trends for young people in the different core European countries which form the central part of this research: France, Germany, the Netherlands and the United Kingdom. Table 1 shows that the decline in the number of 15-25 year olds will be the greatest in Germany over the next decade, followed by the United Kingdom and France. After 2020, the number of 15-25 year olds will decline further in Germany and the Netherlands, but will increase in France and the United Kingdom.

Around 25%-30% of the total number of 15-25 year olds is currently in tertiary education (Figure 4).

Substantial growth in the number of young people (aged 15-25) participating in tertiary education was especially noticeable in the Netherlands and in Germany in the last 10 years.

Labour market perspectives and tertiary education participation

For the years to come, we expect the proportion of domestic students out of the total number of 15-25 year olds to increase slightly. The most important reason for this assumption is the labour market situation. In the coming years many 15-25 year olds will choose to study longer because job prospects are still poor due to economic uncertainty.

However, their longer-term job prospects will be more favourable. Population ageing and the expected economic recovery will bring the unemployment rate down after 2014.

While a country’s demographic development explains the long-term fundamental trend in student numbers in higher education, other factors are also at play and may sometimes run counter to the fundamental underlying trend.

One notable example is that the number of domestic students frequently rises during an economic downturn because of poor prospects in the job market.

We believe that, especially during the current economic downturn and in view of the increase in global

Table 1: Number of 15-25 year olds Source: Eurostat, 2012 2010

2020

2025

2010-2025 growth

2010-2025 per year -1.4%

Germany

9,251,529

7,893,084

7,440,605

-19.6%

France

8,116,936

8,009,696

8,177,435

0.7%

0.0%

the Netherlands

2,028,333

2,049,104

1,993,040

-1.7%

-0.1%

United Kingdom

8,233,615

7,585,139

7,855,315

-4.6%

-0.3%

Figure 4: Proportion of domestic students in total number of 15-25 year olds Sources: OECD and Eurostat, adapted by Bouwfonds REIM Research, 2012 35% Germany France

30%

United Kingdom the Netherlands

25%

20%

15% 1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

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Figure 5: Forecast for unemployment rate Source: Oxford Economics, 2012 12% Germany

10%

France

8%

United Kingdom 6%

the Netherlands

4% 2% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Table 2: Trend in number of domestic students 2011-2025 Sources: OECD, Eurostat and national statistical offices, forecast by Bouwfonds REIM Research, 2012 2025

total

per year

Germany

2,401,000

2011

2,172,000

-9.5%

-0.7%

France

1,984,000

2,129,000

7.3%

0.5%

The Netherlands

612,000

609,000

-0.6%

0.0%

United Kingdom

1,936,000

1,791,000

-7.5%

-0.6%

The impact of government policy Government policy is another factor influencing the total number of students – and, hence, the student housing market. In Germany, for example, the total number of German students in higher education has been rising sharply in recent years as all but one of the erstwhile West German states (Rhineland-Palatinate being the exception) had, by 2007, decided to follow the example of the former East German states in the Federation and reduce the duration of the Gymnasium curriculum from nine to eight years.

This change, which has now taken effect in some states and is in the process of being implemented in others, effectively means many students enrol in higher education a year earlier than they otherwise would do. Germany’s decision to abolish compulsory military service (as from July 2011) also boosted enrolment in higher education.

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Report Investing in European Student Housing

Government budgets and higher education policies are another obvious factor, with changes in state subsidies for student grants and the duration and level of bursaries directly affecting the total number of applications, and the amount of government funds made available to universities indirectly affecting demand for higher education.

According to a Dutch thesis (“Trends in Education Participation”, by B. Kuhry), there is a clear relationship between study funding (provided by the government) and the total number of applications.

In the mid-1990s, the Dutch government decided to cut the number of years of free study funding and lowered bursaries as well. This had a clear impact on the total number of students in the same period (fewer applications than would have been expected

on the basis of predictive factors). Although the exact impact is difficult to define, this thesis came up with a price elasticity of –6%.

Applications in the United Kingdom also declined as a result of higher tuition fees. Although the exact relationship is once again difficult to prove, the decline was enough to make a substantial impact (see article on the right). Total applications fell by 7.7% in 2012. An article in a German magazine (Der Spiegel) on 1 October 2012 noted that a growing percentage of United Kingdom students were coming to Germany to study there. This would suggest that rising study costs and/or lower bursaries also have an impact on the flow of students between different countries. Another factor that will affect the total

number of applicants, although more indirectly, is direct cuts imposed on universities. Government cuts will have an adverse impact on the quality of education and in the longer term could negatively affect the total number of applications as well.

All in all, it can be concluded that the sector is vulnerable to government actions. However, the conventional residential market is also regulated by politics, as recently illustrated in France and in the Netherlands (where the coalition government which took office in November 2012 is seeking parliamentary approval for a comprehensive reform package for the housing market, including a phased reduction of tax deductibility of mortgage interest payments and a relaxation of rent protection).

University applications drop amid higher tuition fees Total number of applicants to all British universities drops 7.7%, with highest fall of 29.2% at University for Creative Arts Jeevan Vasagar, education editor The Guardian, Monday 9 July 2012 12.59 BST A band of English universities charging higher tuition fees have suffered steep drops in applications for study this September, according to official figures.

The total number of applicants to all British universities has fallen by 7.7%, with a 10% drop in the number of English applicants, according to the Universities and Colleges Admissions Service (Ucas).

Among those universities with larger undergraduate intakes, the University for the Creative Arts had the steepest drop in applicants, with 6,842 applying by the June deadline compared with 9,664 last year, a decline of 29.2%. The University of Derby saw application figures fall by 25.4%, while Surrey had a drop of just over 20%.

The University of the Arts London and Sunderland, Sheffield Hallam, Manchester Met and Leeds Met university have also experienced sharp declines in applications.

Overall, just over 618,000 candidates applied for places at university this September.

Demand for a university education still massively outstrips supply; a total of 492,030 students were accepted at UK universities last year.

Applications to study at Cambridge were up 2% on last year, while the number of candidates for Oxford declined by 0.6%.

In an analysis accompanying the data, Ucas said about 15,000 English 18-year-olds who might have been expected to apply for university this year did not do so, even after factoring in a decline in the overall numbers of 18-year-olds in the population this year. The analysis says 15,000 fewer 19-year-olds applied this year than would have been expected.

The decision to let universities raise undergraduate fees to a maximum of £9,000 a year provoked widespread public anger and dented the credibility of the Liberal Democrats. The junior coalition partner had gone into the general election promising to phase out fees.

According to Ucas, there has been a sharper fall in application rates for young people from wealthier backgrounds, compared with poorer teenagers. The trend in recent years has been for larger increases in applications by candidates from less advantaged backgrounds. Taking this into account, the proportional fall becomes more similar across social backgrounds, Ucas says.

Higher fees have not deterred candidates from particular courses. Most courses that candidates have applied for have maximum fees at or near £9,000. The average 2012 tuition fee for English applicants is £8,527.

Applicants from both rich and poor backgrounds are making “much the same choice” of courses as in previous years. There has been no increase in the proportion of students wanting to stay at home to study, which remains at around 20% for English, Welsh and Northern Irish applicants, and 40% for Scottish.

The Ucas chief executive, Mary Curnock Cook, said: “This in-depth analysis of the 2012 applications data shows that, although there has been a reduction in application rates where tuition fees have increased, there has not been a disproportionate effect on more disadvantaged groups.

“The 10% decline in applications to English institutions reported in regular Ucas statistics is more properly interpreted as a reduced young application rate of about 5% after correcting for falling populations. Application rates for older applicants have declined slightly more - by about 15%-20%.”

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Figure 6: Percentage of people who have attained tertiary education (2009) Source: OECD, 2012 70% 60%

25-34 year old

50%

55-64 year old

40% 30% 20% 10%

Brazil

China

Italy

Turkey

Mexico

Austria

Hungary

Portugal

Greece

Germany

Poland

Spain

Denmark

Finland

Switzerland

Sweden

the Netherlands

France

United States

Belgium

Australia

New Zealand

United Kingdom

Ireland

Norway

Russian Federation

Japan

Korea

Canada

0%

Figure 7: Number of foreign students broken down by world region destinations Source: OECD, 2012 4,500,000 Africa

4,000,000

Asia

3,500,000

Europe 3,000,000

North America

2,500,000

Latin America & The Caribbean Oceania

2,000,000

Other 1,500,000 1,000,000 500,000 0 2000

2005

2008

2009

2010

In times of economic downturn, there is often a short-term rebound in the number of domestic students.

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Report Investing in European Student Housing

1.2 The four markets reviewed are expected to benefit from international trends in higher education France, Germany, the Netherlands and the United Kingdom are also benefiting from the strong increase in student mobility witnessed over the past couple of decades – a trend supported by the growth in higher education enrolment numbers not just in Europe itself, but also in Asia, where South Korea and Japan are now global league leaders in terms of the numbers of students in formal higher education (Figure 6).

Students nowadays are clearly more able and willing to travel. Importantly, universities and employers increasingly require an international education.

Employers clearly have a preference for students with international experience, viewing it as evidence of their self-reliance, entrepreneurship and aptitude to work in a global economy. A ‘best in class’ example is that of students at Sciences Po in Paris who are unable to obtain their ‘elite’ diploma if they have not studied abroad for at least one year.

The number of students who studied outside their own country (‘foreign students’) more than quadrupled between 1975 and 2010. In the period 2000-2010, the number of foreign students increased by a staggering 99% to 4.1 million (Figure 7). Asian students represent 53% of these foreign students enrolled worldwide, followed by European students (23%) and African students (12%). This is driven by the rise of the middle class and associated urbanisation processes in emerging economies.

The trend has been reinforced of late by the economic crisis, as students will tend to move out of their own country if they expect their future labour situation to be poor. This is demonstrated by a recent phenomenon in which Southern European students increasingly choose to study in Western Europe as a result of the uncertain economic outlook and high unemployment levels in their home countries. According to Study Portals, interest shown by students from Greece, Spain and Italy in studying elsewhere in Europe increased very significantly in 2012, by more than 150%. They have shown most interest in studying in the United Kingdom, followed by the Netherlands, Germany and Sweden.

Table 3: Relation between economic situation and interest in studying abroad Source: Eurostat & StudyPortals, 2012 Country of interest Youth unemployment rate

Interest in studying abroad (increase)

united kingdom

the Netherlands

germany

sweden

Greece

57.6%

162%

28.1%

20.0%

8.9%

9.6%

Spain

55.6%

156%

22.0%

13.4%

13.1%

8.2%

Italy

36.6%

181%

24.1%

12.8%

10.6%

6.9%

Portugal

38.3%

140%

24.2%

14.2%

7.7%

7.2%

The Netherlands

10.0%

35%

n/a

n/a

n/a

n/a

8.0%

54%

n/a

n/a

n/a

n/a

23.4%

92%

n/a

n/a

n/a

n/a

Germany EU-27 average

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Table 4: Assumed growth rates per year for foreign students per world region (2011-2025) Source: Bouwfonds REIM Research, 2012 germany

france

the netherlands

united kingdom

Asia

5.0%

5.0%

5.0%

5.0%

Europe

1.0%

1.0%

0.0%

1.0%

America

1.0%

2.5%

2.5%

1.0%

Africa

2.5%

1.0%

2.5%

2.5%

Other

1.0%

1.0%

1.0%

1.0%

Table 5: Trend in number of foreign students 2011-2025 Source: OECD and national statistical offices, forecast by Bouwfonds REIM Research, 2012 country

2011

2025

total growth

growth per year

Germany

270,000

380,000

40.5%

2.5%

France

265,000

349,000

31.6%

2.0%

the Netherlands

50,000

55,000

11.0%

0.8%

United Kingdom

551,000

852,000

54.6%

3.2%

Figure 8: Global number of students attending university outside their home country Source: OECD and BĂśhmetal, 2010

2025 forecast 7.6 mln

2010

4.2 mln

1975

0.6 mln

Based on our estimates (Table 4 – see Appendix 1.2 and 1.3 for additional explanation), our expectation of student growth numbers for the different countries is shown in Table 5. We expect the strongest growth of foreign students in the United Kingdom, followed

by Germany and France. The reason for lower growth in the Netherlands is the fact that around 80% of foreign students are from Germany, and the total number of German students will decrease slightly in the years ahead.

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1.3 Europe is a prime destination for students from outside Europe The number of foreign students is of major importance for the total demand for student housing.

As demonstrated earlier, students worldwide are more solvent and eager to travel. Europe, in turn, is the top destination for students from outside Europe. According to the OECD, the global number of foreign students will double again from 4.2 million

Students are clearly more able and willing to travel nowadays.

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Europe’s attractiveness as a destination for foreign students is three-fold:

in 2010 to 7.6 million in 2025. As the number of domestic students will remain broadly stable in the coming years, it is clear that the main driver for future growth in student numbers in Europe will have to come from students from outside Europe.

• Europe offers relatively affordable education, top institutions of higher learning and unique historical and cultural settings

The proportion of foreign students in the total number of students has increased dramatically over the last decade. Currently, on average 13% of all students come from abroad (Figure 9). The proportion of foreign students is the biggest in the United Kingdom, followed by France and Germany. These three countries also rank in the top five destinations for foreign students worldwide (Figure 10).

• The ‘Bologna Process’ is making it easier for students to complete parts of their curricula in different European countries and thus maximise their profiles for the job market • European universities in non-English-speaking countries increasingly offer curricula in English.

Figure 9: Proportion of foreign students in total number of students Sources: OECD and national statistical offices, adapted by Bouwfonds REIM Research, 2012 25% Germany

20%

France

15%

United Kingdom 10%

the Netherlands

5% 0% 1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Figure 10: Top destinations foreign students in 2009 Source: OECD, 2012 United States United Kingdom Australia Germany France Canada Russian Federation Japan Spain New Zealand Italy Austria Korea Switzerland Belgium the Netherlands Sweden Czech Republic Ireland Greece

16.6% 13.0% 6.6% 6.4% 6.3% 4.7% 3.9% 3.4% 2.4% 1.7% 1.7% 1.7% 1.4% 1.3% 1.3% 1.2% 1.1% 0.8% 0.7% 0.7% 0%

18

2%

4%

6%

Report Investing in European Student Housing

8%

10%

12%

14%

16%

18%

Europe offers relatively affordable education, top institutions of higher learning, and unique historical and cultural settings According to the OECD, Europe received the most foreign students in 2009: around 48% of all foreign students worldwide came to study in Europe.

Within Europe, the United Kingdom (13%) received the most students followed by Germany (7%) and France (6%).

Europe is not only home to a large number of top universities by international standards, but also has relatively low tuition fees. The cultural and historical aspects of European cities also make them an attractive destination for many foreign students.

Interestingly, the composition of foreign student populations varies according to the country.

For example, around 80% of all foreign students in the Netherlands are European students, compared to only 31% in the United Kingdom.

In the United Kingdom, the largest proportion comes from Asia. In France, foreign students from Africa dominate.

The Bologna Process is making it easier for students to benefit from the full range of Europe’s educational offering The European Union’s integration process has focused on economic, not cultural integration.

According to Jean Monnet, one of Europe’s founding fathers, this has been its biggest mistake. Apart from the College of Europe in Bruges, ‘European Bildung’ (education as a lifelong process of human development) has never taken root politically. The Bologna Process (see box page 21) is an ex-post attempt to remediate the lack of EU mobility and employability in the internal market by focussing on education.

It therefore has an impact on the current and future

number of European students. At the start of this European reform programme in 1999, the aim was to create a single European Higher Education Area (EHEA) by 2010 with mutual recognition of diplomas.

This has been achieved: the EHEA currently covers 47 European countries, in which students can choose from a wide range of high-quality courses and benefit from easy entry procedures. The number of students from European countries studying in European countries other than their country of origin is, however, still low.

Ministers of the EHEA countries set the new agenda in 2009. One of the four main goals is to ensure that by 2020 at least 20% of those graduating in the EHEA have taken part in a study programme or training period abroad. This has a huge impact on the need for purpose-built student housing.

At present, only 2% of EHEA students study abroad in the EHEA, which implies that governments of EHEA countries ought to promote their programmes of encouragement more. The efficiency and quality of European universities also need to improve further.

Against this ambitious background, we expect this percentage to increase moderately to 5% in the next three years. It is important to note that there are wide variations between the different parts of Europe.

According to Eurostat, Southern and Eastern European countries have more outbound students and Western European countries more inbound students. Almost half of all EHEA students choose to study in the United Kingdom, Germany, France and the Netherlands.

If the internal education market in the EU were to take action on this point, it could lead to a more efficient distribution of universities and academic specialisations than the current rather fragmented interplay of national frameworks. The current economic environment may help boost the Bologna Process.

Figure 11: Country of origin of foreign students, 2009 Source: OECD, 2012 100% Africa

80%

Asia 60%

Europe

40%

North America Latin America

20%

Other

0% Germany

France

the Netherlands

United Kingdom

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19

Figure 12: Countries within the European Higher Education Area

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Figure 13: Distribution of incoming students in tertiary education from abroad from inside EHEA Sources: European Commission, 2012 140,000 120,000 100,000 80,000 60,000 40,000 20,000

Portugal

Ireland

Armania

Finland

Sweden

Romania

Slovakia

Norway

Ukraine

Turkey

Bulgaria

Poland

Denmark

Belgium

Hungary

Spain

Switzerland

the Netherlands

Russia

Czech Republic

Italy

France

Austria

Germany

United Kingdom

0

Bologna Process: The Bologna process is a European reform programme started in 1999. The aim was to create a European Higher Education Area (EHEA) in 2010 in which students can choose from a wide range of high-quality courses and benefit from smooth recognition procedures. A series of reforms was set in motion to make European higher education more compatible and comparable, more competitive and more attractive for Europe’s citizens and for students and scholars from other continents. Nowadays, the EHEA comprises 47 European countries. A lot has already been achieved, but reforms in some areas still lag behind.

Ministers of the EHEA countries set the new agenda for the Bologna Process in 2009. They called for quality higher education and set the following four main goals for the present decade: • Finalising the structural reform and deepening its implementation through a consistent understanding and use of the tools developed • Implementing quality higher education, connected with research and lifelong learning, and promoting employability • Making the social dimension a reality by ensuring that the student body entering and completing higher education reflects the diverse student body of Europe’s populations • Ensuring that at least 20% of those graduating in the European Higher Education Area (EHEA) have had a study or training period abroad.

European growth in numbers of students will be driven by Asian students.

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Growing numbers of European universities outside the United Kingdom offer courses in English As the statistics referred to earlier on the predominant origins of foreign students in the United Kingdom (Asia) versus France (Africa) suggest, a country’s attractiveness to foreign students is strongly influenced by the language in which curricula are taught.

An important development in this respect – presumably driven in part by the Bologna process’s objective of fully implementing the three-cycles system (of Bachelor’s, Master’s and Doctoral degrees) across Europe – is the dramatic increase witnessed across Europe in the number of Master’s Programmes

taught in English in non-English-speaking countries.

Data from MasterPortal in fact shows a ten-fold increase in such programmes over the past decade, from 560 in 2002 to 5,500 in 2012. Most of these programmes are offered in Northern and Western European countries, the Netherlands ranking first, followed by Germany and Sweden. This change suggests that Europe is rapidly responding to the changing demand for education, and the concurrent set of drivers described in this section may indicate that Europe is in the process of developing a globally competitive Europe-wide education market.

Figure 14: Master’s Programmes taught in English (by country and year) Source: MasterPortal.eu, 2012 900 the Netherlands

800

Germany

700

Sweden 600

France Spain

500

Switzerland

400

Belgium 300

Italy

200

Denmark Finland

100 0 2007

22

2008

2009

Report Investing in European Student Housing

2010

2011

Prospective students who have shown the greatest interest in programmes taught in English in continental Europe are primarily based in Europe, followed by Asia. Within Europe, students are most interested in programmes offered in Germany and the Netherlands.

The availability of programmes taught in English varies between the three non-English-speaking countries in our survey – France, Germany and the Netherlands:

• German higher education institutions offer a high percentage of Bachelor’s and Master’s degree programmes solely or primarily in English, or in other major foreign languages (including Chinese, French, Italian, Russian and Spanish). About 1,500 courses are taught in English in Germany; these are widely available across the country, but universities in Berlin lead the table with 7% of the total.

• In France, growth in the number of programmes taught in English has been especially noticeable in business schools, which are under pressure to remain attractive to non-francophone foreign students. In addition, the number of French higher education institutions that offer degree programmes – or parts of such programmes – in English is now also increasing. In 2010, 600 higher education programmes were offered at least partly in English by approximately 160 French institutions. Nearly 80% of these programmes were taught entirely in English. Most of these study programmes are located in Paris (29%), Toulouse (7%) and Grenoble (7%).

• The Netherlands has a relatively high number of study programmes taught in English: with approximately 850 Master’s programmes and nearly 250 Bachelor’s programmes, the country provides an extensive range of degree programmes taught in English compared with other non-English-speaking nations. A small number of Dutch institutions offer several degree programmes taught in German, specifically targeted at German students. Within the Netherlands, Amsterdam offers the most programmes taught in English (15%).

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2. Shortage in supply of student housing is expected to persist The supply side of this market is a local issue. There are huge differences between the various university cities in terms of attractiveness, future building programmes and the availability of alternative lodging for students. The operating model and the ownership structures also differ and may not always be structured in an efficient way. This chapter on the availability of student accommodation – now and in the years to 2025 – therefore outlines the situation country by country.

2.1 Shortages vary between cities and are both quantitative and qualitative in nature A few general trends can be identified. Many European university cities have huge shortages of high-quality and affordable purpose-built student housing. Many top university cities have long waiting lists for suitable housing (according to Kences (NL), Crous (Fr), and others). There is evidence that many domestic students live with their parents, against their wishes. Their aim is to live independently, but they are unable to find suitable and affordable accommodation. According to Eurostudent, 24% of German students, 7% of French students and 6% of Dutch students live with their parents but would prefer to move out (Figure 15).

Not only has quantitative demand for student housing increased, but qualitative demand has also risen significantly. Most students want affordable, comfortable accommodation within a short distance

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Figure 15: Students dissatisfied about their housing situation Source: Eurostudent, 2012 30% Germany

25%

France

20%

the Netherlands

15% 10% 5% 0% Living with their parents

Living alone

Shortages are a shared characteristic in an otherwise fragmented market.

of the university and reasonably close to leisure activities. There is a clear qualitative shortage of this in most university cities, especially in cities that offer a high quality of life combined with a tight residential market. Most of the existing student rooms in these cities are too small, too old and uncomfortable. The gap between demand and supply is particularly wide in the larger cities that are home to top universities, where the residential market is tight. This implies that in these cities, the risk of vacancies in student housing is negligible.

There is only very limited purpose-built student accommodation developed by private owners.

This means that almost 90% of students have to rent in the conventional housing market if they cannot, or do not, wish to live with their parents. Only about 8% of total housing stock comprises one- or two-room apartments, which is rather limited.

Consequently, students have to compete with other single-person households and starters on the job market, who are able to afford higher rents.

France In the coming years, new student housing supply is expected to enter the market, mainly developed by private and professional investment companies.

Universities will step aside, driven by budgetary constraints. Moreover, universities are increasingly subject to educational benchmarking which will make them focus more on their core competence of providing education. Social housing companies and public companies will also pull out of this market as they, too, are increasingly strapped for funds. We do not expect the private and professional market to be able fully to match supply needs on their own and to respond to the withdrawal by social parties. Most will face a funding problem as well, as bank lending has decreased since the Lehmann collapse. Despite new developments, we therefore expect the supply shortage to persist, at least for the next few years.

Almost half of the two million domestic students live with their parents. This number is relatively large and may therefore indicate that there is a shortage in affordable student housing in France.

This is confirmed by Savills, who estimates France has no more than some 342,500 student rooms available in total. Because around 1.5 million students wish to live independently, the vacancy rate is relatively low, being below 2% on average.

Germany

The Netherlands

In Germany, some 225,000 subsidised student rooms are available for around 2.4 million German students.

Despite the growth in the number of students, waiting lists have stabilised. The number of students

The current development pipeline contains around 25,000 rooms for the next five years. Besides this, more than 7,000 student rooms have already been refurbished. This is a significant increase, but insufficient to meet future demand. The government has plans to launch a Campus Plan, which has a target of providing 680,000 student rooms by 2020.

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living on their own has also stabilised at about 60% of the total student population. This indicates that a growing percentage of students are able to find alternative accommodation outside regulated and/or specially constructed student housing, or have given up hope. Waiting lists for student rooms provided by social student housing companies are still quite long.

Waiting lists in Amsterdam, Utrecht and Leiden vary between 12 and 20 months. These companies only manage 70,000 student accommodation units for more than 600,000 Dutch students. According to ABF Research, 33,000 new student rooms are needed to meet expected demand up to 2020.

United Kingdom UCAS data shows that in recent years, demand for university places has been about 20% higher than the number of applicants accepted. Unite Group, the biggest market player for student housing, expects that this will also be the case in the coming years. According to Knight Frank, there is a structural undersupply of student rooms in the United Kingdom.

Recent planning changes have made student housing development more difficult, which is why the rise in student numbers continues to outpace the increase in accommodation.

Student housing – a seasoned real estate investor’s perspective I live in a student house. That is to say, a former student house which we converted back into a single family home when my family and I decided to return to the premises after some travelling. The house is a family asset that originally belonged to my grandparents. I remember well that, when I was growing up, half the house was occupied by six students living independently in three apartments. We got to know some of the students quite well over the years. We followed the progress of their lives and careers. What helped the socialising process was undoubtedly the family cellar of Burgundy wines which my grandfather nurtured. In retrospect, I learned some valuable lessons from this experience: students require some management attention, a rational win-win of rental income in exchange for a decent and safe living, which is easy to structure, and a student house can be reconverted for another purpose.

The student housing investment market is dominated by small private investors, most of whom receive excellent returns and have happy customers. The institutional market is, by contrast, a dwarf.

We started investing in student housing for the Bouwfonds European Residential Fund in 2008. Our first student house was in Marburg in Germany, one of the oldest university cities in Europe. We acquired the asset from a family office for an attractively high yield and with a nice spread compared to local residential yields. Interestingly, by making some limited investments we managed to create additional, simple, student housing units which drove returns up further.

We learned from this experience that the asset had been under-managed, starting with a lack of conceptual understanding of student housing as an asset class on the investment market, down to the daily operations in the physical asset. We were able to reuse these lessons learned when, a few months later, our French acquisitions team identified another student housing asset in Toulouse. Our analyses quickly revealed that this asset was under-managed as well. Here too, we bought at an attractively high yield and yield spread. And again, we were able to drive returns up through an important but not ground-breaking investment plan for the green spaces, the safety and the segmentation of the apartments. Interestingly, although we have continued to invest in a few more student housing assets for this fund since then, we have not been able to invest in the Netherlands, one of our home markets. Here, the pricing seemed almost irrationally high with only a few basis points spread to the normal residential assets, making for a less strong upside.

The treatment of European student housing as ‘Übung’ (a cultivation of a skill), to paraphrase the philosopher Sloterdijk, is, I think, what professional investors in student housing are doing, and should continue to do going forward, to make the European student housing market more mature. This research report highlights some of the conceptual lessons we have learned over the last years in our core European countries and aims to make a small positive contribution to that aim. Interestingly, the report may contrast with other publications on some central points: firstly, our main target cities are not limited to the big national capitals, as our angle is primarily one of residential risk/return level in markets, which I think is key. Secondly, we have segmented the student housing market into a wide variety of different asset types with different risk-return profiles, including, for instance, arrival assets and experience assets on the one hand, and basic student accommodation assets on the other. Lastly, we have given some initial ranges for the size of the European student housing market, as well as the important Europeanisation and globalisation of student numbers, which is often underestimated by investors and local planning authorities.

Xavier Jongen Fund Director Bouwfonds European Residential Fund

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2.2 Student housing is a highly fragmented market with major differences between countries In addition to the above differences between countries in terms of the numbers of students still living at home versus those living on their own, the four markets reviewed also differ significantly in terms of the ownership of student accommodation, the types of accommodation, and the operating models used for providing student accommodation.

Figure 16 provides a simplified overview of the ownership structure of the student housing market.

A clear distinction can be made between public ownership and private ownership, although the definition of the ‘social sector’ differs between countries.

For instance, a private owner of student housing in the Netherlands has to comply with the same rent control regulation as social sector owners. The same

would apply in Sweden or France, but not in the United Kingdom. Based on our estimates (Table 6), about 15% of total supply is offered by social and/or public owners (including universities/on-campus).

This also implies that the private sector dominates the student market with a total share of approximately 85%.

A small proportion is held by professional and institutional investors. Of the four countries reviewed, only the United Kingdom can be said to have a professional investment market for student housing: about 8% of all student accommodation in the United Kingdom is in the hands of institutional investors and operators.

Combining the ownership structure with the various types of accommodation and operating models results in what we see as the most common recognisable clusters or product-market combinations

Figure 16: Structure of the student housing investment market Source: Bouwfonds REIM Research, 2013

student market

Living independently

Social/public student housing

Living with parents

Private student housing

Private investors

Institutional investors

Table 6: Estimation of social sector size Source: Bouwfonds REIM, CBRE and others, 2012 Country

total number of domestic students

Germany

2,400,900

France

1,984,500 612,200

57%

The Netherlands

living alone

number of domestic students living alone

foreign students living alone

total number of students living alone

social rent

% social rent

77%

1,848,700

270,500

2,119,200

225,000

11%

62%

1,230,400

265,100

1,495,500

342,500

23%

348,900

49,500

398,400

70,000

18%

United Kingdom

1,935,600

81%

1,567,800

551,400

2,119,200

308,800

15%

Total

6,933,200

69%

4,995,800

1,136,500

6,132,300

946,300

15%

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Figure 17: Product Overview Source: Bouwfonds REIM , 2012

high rent

functional

experience

Private Investors, Landlords

professional investors

In house-rooms, shared appartments

Studio’s, Student hotels

property

services universities / social housing Student rooms, on-campus

low rent

in student housing: on-campus basic rooms offered by public companies (mainly United Kingdom), luxury furnished studios operated as a student hotel, and privately owned in-house student rooms or shared apartments (Figure 17). As a result, the returns (and required yields) span a wide range, or at least they should, although in our experience this is not always the case.

This section briefly describes the most common (i.e. not all) product-market combinations in the market for student housing, and illustrates the diversity of student housing as an investment product.

On-campus basic rooms offered by public companies

diversified. ‘On campus’ student housing is scarce in Germany as many of its universities are not concentrated on a campus but scattered throughout the respective city.

Privately owned in-house or shared apartments By far the largest part of the student housing market is owned by private (often non-professional) investors, who work according to an operating model comparable with conventional housing: the tenant (student) pays the owner a monthly amount for an unfurnished room. In principle, the contract is for an indefinite period. Professional investors also work according to these kinds of operating models. In these cases, the accommodation is comparable to ordinary one-bedroom apartments.

In the United Kingdom, by far the largest proportion of public student housing is in on-campus furnished rooms. These rooms can be described as small with shared basic facilities (kitchen, bathroom, etc.).

On-campus accommodation is only available to students who are enrolled at the university. Social housing companies also impose specific student requirements, generally an income criterion, before a student can rent student accommodation. After graduation, students are no longer permitted to stay in their student lodgings.

Within the large sector of privately owned student housing, supply is highly diversified. Students are housed (in groups or alone) in private flats and apartments that vary tremendously in size, comfort and price, and are scattered throughout the cities.

Students also live in rooms let by private landlords, or live in apartments bought by their parents or other members of their family.

The United Kingdom has a relatively high percentage of students living on campus, totalling 23% of those who live away from home. In Germany, the Netherlands and France, most social student housing is unfurnished and off-campus, and highly

• In France, of the 62% of French students who lived away from the family home in 2012, the majority rented a room or flat, either alone or as a couple, and 11% co-rented the same type of housing.

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• In Germany, shared flats are the primary type of student housing.

Figure 18: Students’ living situation Source: OVE, LaaglandAdvies, Kences, HESA and Bundesminiterum fur Bildung und Forschung, adapted by Bouwfonds REIM, 2012 60% Living with their parents

50%

Living alone/partner

40%

Student complex 30%

Other

20% 10% 0% Germany

France

the Netherlands

• About 50% of all Dutch students rent a room in a flat or student house, and live with other students.

The majority of these students have to share facilities such as the kitchen or bathroom.

It is this part of the market that is opaque and underresearched. Interestingly, there are noticeable cultural differences between countries. The Netherlands, for instance, has a long tradition of student associations with their own student housing. These are often prestigious, very badly maintained buildings, which do not at all appeal to foreign students.

Figure 18 summarises students’ current living situation in the four countries reviewed.

Luxury furnished studios operated as a student hotel A third, limited group of suppliers of student housing is that of the professional real estate investors.

There are several specialised investment companies active in this field, especially in the United Kingdom.

Examples are the Unite Group, UPP (through PGGM and others) and the Opal Group. Those companies provide students with – generally speaking – modern, well-furnished studios and/or apartments.

In Germany, France and the Netherlands, too, professional institutional investors are entering the market with new forms of student accommodation.

Frontrunners in this area are Syntrus Achmea (student housing in the Netherlands), Gecina (France) and Youniq (Germany).

United Kingdom

Often, but not always, these modern types of student housing are in some way comparable to a hotel: the rooms are furnished and the accommodation frequently offers additional shared services such as a fitness room or meeting room. This type of accommodation is especially suitable for students coming from abroad, who are fairly well off. In this model, the owner of the building is not always the operator of the building. The owner often rents out the building to a special operator for a fixed amount under a ‘nominal agreement’. The student housing operator is responsible for setting rents and dealing with any vacancies. This model is very common in the United Kingdom.

Recently, initiatives comparable to this ‘hotel’ operating model have also appeared in continental Europe, for example, ‘The Student Hotel’ in the Netherlands. Considering the increasing interest from institutional investors in investing in student housing, we expect this operating model to become more common in future. New specialised student housing operators will enter the European market and existing student housing operators from the United Kingdom will probably also expand overseas.

We believe that in time, this will support professionalism in the student housing investment market.

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3. Students can afford to rent and tend to be reliable tenants In order for an investor to secure rental income, it is important to consider affordability: can students pay the rent? To determine the affordability of student housing, one has to take a closer look at students’ sources of income and spending patterns. We focus on ‘average’ students not living with their parents. Overall, the average student studying in Europe seems to be able to pay their rent, often supported by their parents. However, total study costs and their effect on affordability also have an indirect effect on student behaviour: if overall study costs become too expensive, students will tend to move to other countries.

3.1 Students draw income from a variety of sources Student income is an important factor in determining affordability. Average student income varies greatly from one country to another, with the United Kingdom having by far the highest average income (€1,500 per month, see also Figure 19). Total student income can be derived from the following four sources: • • • •

Public sources Family Self-earned income Private loans.

Public sources Public sources include loans, bursaries and scholarships. In general, a student can obtain these from non-profit organisations such as the government, educational charities and universities. Student loans

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Report Investing in European Student Housing

and bursaries vary considerably according to country, type of student and parents’ income. Regulation and fiscal policy also play an important role in students’ total spending power and behaviour. For instance, the recent elections in France and in the Netherlands have brought in new saving plans which will have an adverse impact on public student loans and bursaries.

This might result in students’ spending patterns becoming more frugal.

In the Netherlands and the United Kingdom, around 45% of the average student’s income depends on loans and bursaries. This is relatively high in comparison to France (27%) and Germany (15%), and makes students in those countries much more vulnerable to government cuts. Table 7 provides a brief summary of the public sources open to students in our four countries. We focus only on students living outside their family home.

The average student studying in Europe seems to be able to pay their rent, often supported by their parents.

Figure 19: Average monthly student income and sources of income Source: Eurostudent and National Student Surveys, 2012 € 1,800 Higher regulation risk

€ 1,600

Lower regulation risk

Public sources Family

€ 1,400

Self-earned income € 1,200

Other

€ 1,000 € 800 € 600 € 400 € 200 €0 United Kingdom

the Netherlands

Germany

France

Table 7: Summary of public sources Source: Diverse, 2012 germany Basic bursary Supplementary bursary Travel product

n/a

Study loan

€ 320 p/m max dependent on situation

Other loan

france

the netherlands

united kingdom

€ 266 p/m available to all students

£ 242 p/m max dependent on household income

€ 383 p/m max dependent on income parents

€ 240 p/m dependent on income parents

n/a

n/a

€ 90 p/m

n/a

€ 285 p/m and after 4 years max € 850 p/m

£ 577 p/m max dependent on where student lives

€ 142 p/m

£ 280 p/m

€ 320 p/m max dependent on situation

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The Netherlands All bursaries and loans are valid for a period of four years, except for extended studies. In the second half of this year, some amendments will be made to these bursaries. After the fourth study year (Master’s degree) the bursaries will be replaced by a loan. In addition, the travel product will be curtailed, and students will also be discouraged from studying for a long period. To summarise, bursaries will be replaced by loans, which will make it more expensive to study.

In general, foreign students will receive the same amounts as local students.

Germany The German system for loans and bursaries (BAföG) is very complicated and is calculated on an individual basis. It depends on the student’s personal income, the family situation and family income. The total amount of money students can receive is equally split between a 50% bursary (max €320 p/m) and a 50% loan (max €320 p/m).

France Bursaries and loans in France can be divided into two types. The first are bursaries to assist in financing education and living costs. The second is a housing subsidy for students who do not live with their parents.

There is a subsidy for students who live in social housing (APL) and one for students who live in other types of housing (ALS). There are also scholarships for excellent students who have integrated into French society (€200 p/m).

United Kingdom The situation varies in the various countries that make up the United Kingdom. For example, Scottish students and EU students studying in Scotland are not required to pay tuition fees, but students from elsewhere, including England, are liable to pay tuition fees. Loans and grants are available to United Kingdom students, and additional scholarships exist for excellent students. As from the new academic year, there will be some changes. Basic bursaries will increase, as will student loans and other loans to cover tuition. This is also due to the fact that tuition fees will increase. Foreign students are also eligible to receive loans and scholarships.

Self-earned income Student will increasingly have to take on paid work when the difference between expenses and income increases. However, in the Netherlands, for example, students are only allowed to work up to a specific income level in order not to lose their basic bursary.

The proportion of self-earned income is relatively high in France (50%), while in the other three countries it is almost the same at around 25%.

Family and private loans Parents and other family members support students in two ways: in terms of money (a monthly sum to assist with monthly living costs, rent or tuition fees) and in kind (providing food or a room or house).

The latter is more difficult to measure and is not really applicable to foreign students. Finally, and especially for those education programmes that lead to high qualifications (with good job perspectives), it is also possible for students to get a student loan from the bank.

Due to higher tuition fees and the fact that governments are moving away from bursaries and toward loans, we expect European students to have to rely on their families even more in the future. Generally, families will support their children’s education as much as possible, as it offers their children a better start in a labour market that is more competitive than ever. Most families in the countries studied seem to be able to support their children financially. Recent research by Eurostat shows that the financial position of European households is fairly healthy. Savings rates have remained remarkably stable over the last two years. To sum up, despite the current economic downturn, the financial strength of students will remain – on average – relatively high.

Figure 20: Total net savings rate (net assets as percentage of GDP) Source: Commerzbank and European Commission, 2012

Belgium

205%

Italy

175%

Netherlands

166%

France

142%

Germany

127%

Portugal

123%

Austria

120%

Spain

78%

Greece

55% 0%

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Report Investing in European Student Housing

50%

100%

150%

200%

250%

Table 8: Student expenses Sources: nibud.nl, studentenmonitor.nl, nus.org.uk, partenaire-europeen.fr, studis-online.de and OVE, 2012 germany

france

the netherlands

united kingdom

Average monthly costs

€ 850

€ 1230

€ 920

€ 1500

Tuition fees

€ 50 (6%)

€ 50 (4%)

€ 160 (17%)

€ 464 (31%)

Rent

€ 350 (41%)

€ 460 (37%)

€ 360 (39%)

€ 420 (28%)

Living

€ 450 (53%)

€ 720 (59%)

€ 400 (44%)

€ 616 (41%)

3.2 Housing typically consumes 30-40% of student budgets

to cover these higher fees. However, the higher costs did have a negative impact on the growth of total student numbers in the United Kingdom (cf. the section on the impact of government policy in paragraph 1.1).

On the other side of the ‘balance sheet’, student expenses can be broken down as follows: • Tuition fees and other study costs • Rent • Living expenses.

Rent

Table 8 details these categories of expenses for each of the four markets under review in absolute terms (euros) and as a percentage of the total. We have assumed that total income equals total expenses.

Tuition fees Tuition fees are costs that students have to pay in order to study. These costs vary greatly between countries, with tuition fees in Germany and France being the lowest. This offsets the lower student income from public sources in these countries. In the Netherlands and the United Kingdom, tuition fees are higher, consuming 15% to 30% of monthly expenses. Tuition fees in the United Kingdom rose significantly in 2012, but student loans also went up

Students pay rent weekly (in the United Kingdom) or monthly. Average monthly rental costs vary between 30% and 40% of students’ total monthly expenses in all countries. Students in the United Kingdom spend the lowest percentage. On average, students spend a higher percentage of their income on housing than conventional households do (25%-30%).

Living expenses Whereas tuition fees and rent are a student’s ‘fixed’ costs, living expenses – comprising items such as food, clothing, mobile phone, transport, sports and leisure activities – are in a sense the ‘variable’ component of the budget. If tuition and rent go up, students have some room to economise on their living expenses.

For all countries, living expenses represent the largest ‘part of the pie’, ranging from 40% to 60%.

Figure 21: Percentage of students’ average monthly income spent on net rent Source: Eurostudents and national student surveys, 2012 60% 50% 40%

Germany France United Kingdom

30%

the Netherlands

20% 10% 0%

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4. Student housing appears to meet key investment criteria According to our analysis in the previous chapter, market conditions for the Western European student housing market are sound: increasing number of students, good affordability and a lack of supply. In this chapter, we take a closer look at the investment market and analyse its size, cash flow, correlations and risks. In this context, we looked at the United Kingdom in particular, since United Kingdom student housing is already an established investment class.

Table 9: Estimation of the investible student housing market Source: Bouwfonds REIM Research, 2012 country

No of students that need accommodation

Investment volume (€ billion)

Germany

2.4 million

106

France

1.7 million

76

The Netherlands

0.5 million

21

United Kingdom

2.3 million

104

+/- 7 million

+/- 300

Total

In general, investment in student housing can be said to be attractive. Investment market conditions, in combination with the product’s specific risk-return characteristics, mean that income streams are (on average) of a high quality with limited risks. Initial yields are – unjustifiably – high, which leads to a real estate class that can clearly add value to an existing portfolio. In time, an additional yield compression might occur – as and when (and if) the investment market becomes mature (i.e. liquid). But even if student housing does not develop into a mature investment market, the characteristics of student

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housing properties generally allow for sufficient liquidity resulting from alternative exit strategies.

We conclude, therefore, that in general the riskreturn profile of student housing could be slightly superior to residential (Figure 22).

4.1 Student housing represents an investment market of an attractive potential size The investment market for student housing is not yet transparently structured. As mentioned in chapter 2, student housing is widely spread

The investment market for student housing is quite sizeable and offers a lot of expansion possibilities.

Figure 22: Adding European student housing can add value to an existing real estate portfolio

EXCESS RETURN

Source: Bouwfonds REIM Research, 2012 7% 6%

European student housing (assumption)

5%

European residential real estate 0.8

4%

0.3

3%

European real estate

0.7 2%

Bonds Equity

1%

0.0

Risk-free 0% 0%

5%

10%

15%

20%

25% RISK

among many different non-profit, private and professional providers. Based on Table 6 (paragraph 2.2) and assuming that 10% of all students who live with their parents are actually looking for a student room as well, the total number of students requiring accommodation in our research countries is approaching 7 million. On the back of recent transactions and the current supply of student accommodation, we estimate the average value of each student room to be around €45,000, which puts the estimated total investment volume at more than €300 billion(!).

As stated in chapter 2, around 950,000 students are housed in social / public student rooms and, if we

assume the same average value, this means that public companies own properties worth more than €40 billion altogether. This still leaves a total investment area for the market of €260 billion. However, by far the largest part of the pie is in the hands of private individuals and/or is not defined as special student accommodation (for example shared apartments).

In the United Kingdom, the professional market dominates around 8% of the market, while we estimate that it is less than 2% in the remaining countries. Assuming this, it still implies an ‘existing’ professional investment market of around €20 billion, with a lot of expansion possibilities over time (eating from the rest of the big pie).

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Table 10: Summary of student housing transactions Source: Real Capital Analytics and IPD, 2012 Transaction Volume (€ million) Germany France The Netherlands

Number of Transactions

Average Transaction Number of Trans­ Size (€ million) actions with Cap Rate

Gross avg Cap Rate Student Housing1)

Gross Cap Rate Residential IPD2) 6.0%

149

8

19

1

6.6%

54

3

18

3

6.4%

3.9%

116

3

39

1

6.0%

5.4%

United Kingdom

3,758

53

71

19

6.4%

3.1%

Total/Average

4,077

67

61

24

6.4%

4.6%

1) Data on student housing as from 1 January 2011; source Real Capital Analytics

2) Data on IPD residential yields as from 2011

Figure 23: Estimated market size (€ billion) Source: Bouwfonds REIM, 2012

20

40

Social/public ownership Private ownership/others Institutional investors

240

4.2 Student housing offers high yields for a sound risk profile

Risk profile: leases tend to be relatively short, but default rates are low

more opportunity to adjust rents upwards in markets that are characterised as being tight.

In both cases, it means that student housing requires more management intensity than average housing.

In chapter 2 we showed that the current European student housing market is characterised by a supply shortage, which in many cases will provide the opportunity to raise rents frequently. Sometimes, however, a local student housing market does not suffer from shortage in supply and raising rents would result in the opposite: vacancies and a very volatile cash flow.

Theoretically, this higher volatility in student housing, caused by shorter lease contracts, would require an additional risk premium versus tenancy of conventional residential real estate.

On average, students rent for a relatively short period. As a result, contract periods are short and, additionally, the industry exhibits seasonality due to the academic calendars. These characteristics mean that, theoretically, the cash return is more volatile than in the regular residential market. This also offers

On the other hand, the rent paid by a student is often supplemented by parents who act as financial guarantors. The number of students defaulting is therefore relatively low, which reduces the risk of bad debts and partly offsets the effect of the above factors.

The professional investment market for student housing across Europe is young and clearly underresearched. Because of its dispersed ownership structure, there is also no sizable historical database.

Historical returns on student housing are only available for the United Kingdom and, therefore, that is the country we will focus on in particular; for the other countries we have used information based on our own and other transactions that have been announced in press releases. A summary of these returns is shown in Table 10, which also provides comparisons with the conventional residential market (IPD).

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Report Investing in European Student Housing

Figure 24: Commercial and student yields in the United Kingdom Source: Savills Research, 2012 10% 9% Gilts (10 year)

8%

Industrial (initial yield)

7%

Retail (initial yield) YIELD

6%

UK Student Housing (initial yield) Office (initial yield)

5%

UK residential (gross yield)

4% 3% 2% 1% 0% 2001

2002

2003

2004

2005

2006

2007

Yields appear to compare favourably with conventional residential real estate – but a careful selection of opportunities is needed According to Real Capital Analytics, the initial yield for student housing in the United Kingdom is 6.4% on average, versus 3.1% for conventional residential real estate. Both yields are based for a large part on transactions in London. Outside London, yields are substantially higher.

In the other core countries, the volume of transactions is substantially lower, but here too it is undeniable that there is a substantial gap between student housing gross initial yields and regular residential yields. On average, the yield gap is 1.8% and our own investment experience also suggests that yields for student housing are higher (1.5% on average). It is obvious from Figure 24 that this is not a temporary symptom, as the gap has been noticeable for many years in the United Kingdom.

One of the reasons for this gap is the higher-than-average operating and management costs of student housing. Student housing is clearly more management-intensive. The gap between net yield for student housing and regular residential investments will therefore be less than the gap in gross yields. But even if we take this into account, it still appears that a higher risk premium is included.

The question is whether this additional risk premium

2008

2009

2010

2011

for student housing investments can be explained by its higher risk profile or whether other factors (inefficiency of the investment market) play a role?

The 2% gap in yields is not fully explained by the nature of the product, by the forces of demand (chapter 1) and supply (chapter 2), or by the investment characteristics discussed in this chapter.

The most common operating ‘hotel’ model in the United Kingdom, cash flow volatility and the political environment (see also the section on the impact of government policy in paragraph 1.1) are also reasons for a higher risk perception, but this can be partly offset by the limited exit risk (due to alternative use) and the fact that the sector is anti-cyclical. However, it would be too easy to blame the gap solely on the inefficiency of the investment market (underresearched, lack of transparency of ownership and illiquidity). If that were the only explanation, the gap in the United Kingdom (a more mature investment market) would be lower in comparison with other European countries, which is not the case. Consequently, there are two reasons for the current relatively big gap in the United Kingdom: firstly, yields, especially in the conventional residential market, have declined substantially, and secondly, the operating model in the United Kingdom is often (around 50% of the total) characterised by the higher-risk ‘hotel’ model (which is not the case in the other countries).

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Figure 25: Relationship between change in GDP growth and change in number of domestic students Source: Oxford, OECD, 2012 THE NETHERLANDS; CORRELATION: -0.3

GERMANY; CORRELATION: -0.7 15%

-4%

-10%

-6%

-15% FRANCE; CORRELATION: 0.0

2011

2010

2009

2008

2007

15%

2011

2010

2009

2008

-15%

2007

-6%

2006

-10%

2005

-4%

2004

-5%

2003

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

0%

-2%

Report Investing in European Student Housing

GDP

5%

2002

GDP

2%

Student

10%

2001

Student

4%

38

2006

UNITED KINGDOM; CORRELATION: -0.3

6%

0%

2005

-5%

2004

0%

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

-2%

2001

0%

GDP

5%

2003

GDP

2%

Student

10%

2002

Student

4%

2001

6%

Table 11: Overview of single person households Source: National Statistical Offices, 2012 share

growth 2011-2030 (total)

growth 2011-2030 (15-65 years)

growth 2011-2030 (65+ years)

Germany

40%

9%

3%

19%

France

34%

19%1)

n/a

n/a

the Netherlands

36%

26%

7%

68%

United Kingdom

29%

54%2)

50%

60%

1) Forecast for the period 2010-2020

2) Forecast for the period 2008-2033

Overall, we conclude that, in general, the higher yield cannot be accounted for by the lower quality of the cash flow or the higher average risk profile, either in the United Kingdom or in the continental European countries. This makes the sector in general extremely interesting to invest in. Having said that, we would like to remind readers that the range of investment products in this field is rather large, so each category should be judged on its own characteristics.

4.3 Student housing represents an anti-cyclical investment category In times of economic downturn, there is often a short-term rise in the number of domestic students.

This is caused by the anti-cyclical nature of student numbers. Students choose to study longer when job prospects are poor. The student housing market follows its own pattern and we therefore assume that investments in student housing will have a relatively low correlation to other asset classes.

The relationship between GDP growth and applications from domestic students backs up the above assumption. Figure 25 illustrates that in each country there is either no correlation or a negative one between GDP growth and the growth in the total number of domestic students.

4.4 Student housing offers ample scope for investor exits Most student buildings are located in strong residential markets and/or capital cities. Although the inside of the building is designed for this particular use, the fact that the units are designed for single use is significant. This often offers an alternative exit strategy with little redevelopment (into singleperson apartments or a hotel). This aspect will firm up capital value growth in the longer term, especially as single person households are expected to increase in number over the next two decades. Changes in demographics (ageing), lifestyles and social structures will lead to further future demand for single occupancy housing.

Most single householders fall into one of three categories: • Single young professionals such as students, first job seekers and starters • Middle-aged divorced people without children • Elderly widows and widowers.

The total number of households will increase in all countries in the coming 20 years. This is because the number of single person households will grow substantially, partly as a result of the ageing population, as can be observed from Table 11.

In general, investments in student housing can be said to be attractive.

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5. Where to invest?

Although the total number of students across Europe will continue to grow, this does not mean that every European city will find itself with an increasing number of students or that it will represent attractive investment opportunities for student housing. We expect that the differences between the top European and regional universities will increase further in the years to come.

Cities that are home to top universities will always attract students (including foreign students). However, cities that are characterised by a large absolute or relative student population also remain attractive investment areas. The attractiveness of a student housing investment also depends on the residential market conditions of the region in which it is located.

Regions with an attractive residential market offer the best opportunities for alternative use as these are regions facing a housing shortage.

5.1 European regional residential attractiveness rating

To create a map showing the attractive and less attractive regions for investing in student housing, the variables mentioned above were included in a threestep analysis: 1. Regional residential attractiveness rating 2. Regional European university rating 3. Liquidity (size) of the student market.

• Growth in households – This is the most important variable for the housing market, since the demand for new housing mainly depends on the number of households. We took the average expected annual growth for the period 2012 to 2017.

These variables are discussed separately below.

In the final paragraph, we will discuss our findings.

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We have analysed which European regions are more attractive and which are less attractive for investment in residential real estate by our existing residential funds. We conducted a top-down analysis on a NUTS 3 level based on demand factors for the next five years (2012-2017).

The following factors were taken into account:

• Number of households – This variable gives an indication of the scale of the market. The size of households is different in each region and each country, but because the minimum number of households was set at such a high level, this had hardly any impact.

Our analyses combines local residential market conditions with a university ranking.

• Population density – This variable was mainly used to neutralise the differences in surface area between the regions. The size of the areas varies considerably.

• Proportion of people over 60 years old – Ageing is a negative factor for the housing market. A large group of older people means that the population will grow at a slower pace or will even decline.

This will also result in lower economic growth.

A larger group of people aged over 60 may, however, also lead to greater demand for accommodation for the elderly, but this is a different question and may be of a temporary nature.

• GDP – This indicates the size of the economy.

Regions with greater economic activity will attract more people than regions with a low GDP. • Employment growth – Having a job gives people income security and therefore the guarantee that they can pay the rent for their homes. Positive growth in employment therefore has a positive effect on the residential real estate market.

We again based this on the average expected annual growth for the period 2009 to 2014.

The variables mentioned above were included in what is known as a double-sided ‘filter-technique’.

The outcome is a list of European regions divided into seven categories, ranging from A1 regions (most attractive) to D2 regions (least attractive) (Appendix 2).

5.2 Regional European university rating To analyse the regions with top universities we have created a university ranking for the countries we researched. The list was based on the average of the following rankings: • QS World University Ranking • The Times Higher Education Ranking • Academic Ranking of World Universities.

All university rankings favour universities in countries in which English is spoken, because non-English language academic work is less frequently published and cited. Our University Ranking shows the average ranking of all top universities in a certain region.

Regions with an average ranking higher than 50 host top universities and will attract a lot of students in the future. The list can be found in Appendix 3.

• Regional clusters – Certain clusters have more appeal for investment in residential real estate than others. Attractive clusters are Business Services, Business Trade and Financial Services.

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5.3 Liquidity (size) of the student market A third filter was based on the total number of students and/or the proportion of students in the total city population. It is important to note that these student numbers are on a regional level and recorded by the universities in the region and not all of these students study or live in the main regional city.

The largest university cities host more than 50,000 students. Regions with a relatively large student population are regions where the proportion of students in the total city population is above 20%.

20% share of the local population) and Nottingham (C region, average university rank of 33 and 62,000 students representing 20% of the local population).

The Netherlands also hosts many top universities and all Dutch regions have a significant student population.

Examples of these are Utrecht (A1 region, average university rank of 19 and 74,000 students or 25% of the local population) and Groningen (C region, average university rank of 34 and 53,000 students, representing a share of 29%).

5.4 Conclusion

Both France and Germany have fewer ‘top university’ regions. One of the reasons for this is that the availability of study programmes taught in English is relatively low (an important criterion for the general university rankings). However, this certainly does not mean that there are no attractive areas to invest in.

In contrast, many cities are characterised by a high percentage of students (relative to total number of inhabitants). This provides attractive liquidity for a possible investment in student accommodation.

Examples of such cities are Lille (A3 region) where 129,000 students account for 55% of the total city population and the A1 regions Lyon (136,000 students representing a 28% share) and Toulouse (99,000 students, or 22% of the total population).

Examples in Germany are Darmstadt, with 40,000 students (28% share) and Münster, with 50,000 students (19%). Both cities are in an A3 region.

Combining the aforementioned three analyses produces an initial list of the ‘investable universe’ of European student housing, the attractive regions for investing in student housing (Figure 26). These regions not only host top universities (average ranking higher than 50) or have a relatively large student population (>50,000 students or >20%), they also have an attractive residential investment market (A1, A2, A3, B or C).

Some regions have both a top university and a large student share. In this case only the top university is shown.

According to this map, United Kingdom and Dutch regions are generally attractive due to the presence of both top universities and a large student population.

French and German regions, on the other hand, are mainly attractive because of their relatively large student populations – their university rankings being lower because of their smaller number of programmes taught in English.

In the United Kingdom there are many regions with both an attractive residential investment market and an average ranking higher than 50 in our Regional European University Ranking. Most of these regions also have a large or relatively large student population.

Examples of these are Manchester (A1 region, average university rank of 9 and 98,000 students, being a

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Report Investing in European Student Housing

All capital cities offer good investment opportunities in student housing, mainly because they have a large student population and an attractive residential investment market. Satellite cities of the capital cities in the United Kingdom and France are also attractive (Cambridge, Oxford and Evry). Some cities, such as Manchester and Munich, not only host a top university but also have a large student population.

Figure 26: Attractiveness for investments in student housing Source: Bouwfonds REIM Research, 2012

f f

ff f f

f

f f fff f ff f f f f f f f f f f f

f ffff f

f

ff f ff f ff

f f f

f

f f f

f f f f f ff f f f f f

f

f

f

f

f f

f

f

f

f f f

f f f

f

f

f

f

f

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Appendix Appendix 1: Explanation of assumed growth rates for students 1.1 Future numbers of domestic students by country Germany Currently around 2.5 million German people are studying at a German higher education institute.

Despite the ageing population, there was a positive trend in the years between 2007 and 2011, due to changes in the educational system (reduction in the duration of the Gymnasium curriculum) and the abolition of compulsory military service.

These factors are also expected to have a positive impact over the next two years. Thereafter, mainly due to demographic developments in Germany, the total number of domestic students will decrease by around 10% between 2011 and 2025 (-0.7% per year).

This is well below the average increase in the number of domestic students of 2.3% per year between 2000 and 2011. The decline in the number of domestic students will not be uniform across the whole of Germany, because regional differences will further increase. Students will more than ever opt for the best universities in Germany, resulting in increasing numbers of domestic students in top university cities and decreasing numbers in regional university cities.

France Almost 2 million French people were students in 2011.

The number of domestic students increased by 5.7% (0.5% per year) between 2000 and 2011. This growth was mainly due to demographic reasons, but in the last two years there was a 3% increase, despite the turnaround in the demographic structure.

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We assume that economic circumstances further drove up the number of domestic students.

Based on our own forecast, the number of domestic students will further increase by 7.3% between 2011 and 2025. This implies that the total number of domestic students will remain stable on an annual basis. Not only will more young people attend tertiary education, but the number of 15-25 year olds will also increase between 2011 and 2025. As in Germany, French cities that are home to top universities will attract the most domestic students.

The Netherlands Around 610,000 Dutch people are currently studying at a higher education institute, an increase of almost 30% compared to the beginning of this century (2.4% per year). This increase is mainly due to the economic circumstances following 2008. Between 2008 and 2011, 9% more Dutch people chose to enter tertiary education. Unless more young people decide to study at a higher education institute, we expect the total number of domestic students to decrease slightly between 2011 and 2025 (0.6%), mainly because the number of 15-25 year olds will decrease slightly in the same period. Not every Dutch university city will face a period of falling numbers of domestic students.

European growth in numbers of students will be driven by Asian students.

United Kingdom Between 2000 and 2011, the number of domestic students increased by 7.5%, up to 2 million.

We expect this number of domestic students to decrease over the next decade by a total of 7.5%.

This expectation is based on the fact that the number of 15-25 year olds will drop further in the United Kingdom. The reduction might be greater due to the introduction of higher tuition fees from October 2012 (from ÂŁ3,375 a year to between ÂŁ6,000 and ÂŁ9,000).

Recent figures show that this has had a small negative impact on the number of applications. According to King Sturge and UCAS, applications for courses with an early deadline were only down 0.8% compared to 2011.

1.2 By continent Asia We expect the growth in numbers of foreign students in Europe to be driven mainly by the growth in numbers of Asian students. This is not only caused by demographics. The number of 15-25 year olds will increase in most Asian countries, but growth rates are relatively low, for example 0.4% in India and 1.3% in Malaysia. The number of people in China between the ages of 15-25 will even decrease. The most important reason for high growth in the number of foreign students from Asia will be the higher participation rate of students and a larger proportion of students

who will study abroad. We assume a growth rate of around 5% per year.

Europe The growth in numbers of European students studying in other European countries will remain stable or increase slightly, because the number of 15-25 year olds in most European countries will remain stable or decrease in the coming years.

However, in countries such as Germany and the United Kingdom, this decline will be partly offset by increasing interest from students from Southern Europe and by the Bologna Process.

We assume a growth rate of European students of 1% per year for France, Germany and the United Kingdom. For the Netherlands, we expect the number of students from Europe who plan to study in the Netherlands to remain stable. Although a lot of students from Southern Europe are showing an interest in the Netherlands, around 60% of all foreign students come from Germany, a country with a sharp decline in the number of its domestic students. The number of European students in Germany will increase slightly.

There, many European foreign students come from Poland and Russia, countries that will face significant ageing of the population. However, Germany is becoming more popular for students from Southern

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Europe. Because European foreign students in France and the United Kingdom are widely spread across Europe, we assume that their total number will increase slightly in the period 2011-2025.

Africa We also expect the number of African students coming to Europe to increase further. The number of 15-25 year olds in most parts of Africa will grow, the only exception being Northern Africa, a region that will face a period of ageing. Because France is very dependent on students from French-speaking North African countries, we assume that the number of foreign students from Africa will increase by only 1.0% per year in France and 2.5% in the other countries we studied. This is also caused by a higher participation rate in Africa, pushed by recent developments in North Africa. However, due to economic circumstances, the growth in numbers of African students will be lower compared to Asia.

The Americas The number of students from American countries is expected to rise further. This is mainly due to the growth in numbers of Latin American students.

The number of 15-25 year olds will increase in many Latin American countries. In the US, the number of 15-25 year olds will remain stable and a decrease is foreseen in Canada. The participation rate in those areas will remain unchanged. We assume that the growth rate of American students in the Netherlands and France will be higher compared to the United Kingdom and Germany. This is because American students in Germany and the United Kingdom mostly come from the US and Canada. France and the Netherlands are more dependent on Latin America.

1.3 Future number of foreign students per country Germany With 10% of its higher education population coming from abroad, Germany is the fourth most popular study destination in the world for international

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Report Investing in European Student Housing

students, according to OECD data. The number of foreign students increased by 45% between 2000 and 2011. Most of these students are from Asian countries (33%), but many also come from Poland (5%) and Russia (5%). The most important country of origin of international students in Germany is China, which has become Germany’s most important partner in education and research. The cooperation is thanks to explicit efforts by the German federal government, the German Academic Exchange Service (DAAD) and individual higher education institutions. In 2010, 12% of all foreign students were Chinese. Based on our assumption, the number of foreign students will increase by 2.5% per year to 40.5% between 2011 and 2025. This growth will come especially from a higher number of Asian students. The total share of foreign students will be 15% in 2025.

France In terms of international student numbers, France ranks fourth among the leading international student destinations in the world, behind the US, the United Kingdom and Germany. Almost 12% of all students in France are from abroad. The top five countries of origin of international students in France are Morocco, China, Algeria, Tunisia and Senegal.

The number of foreign students in France increased from 137,000 in 2000 to 265,000 in 2011. The availability of programmes taught in English is of less importance in France, because most foreign students come from African countries (43%). Around a quarter of the total number of foreign students are from Asian countries.

France has fewer European students compared to Germany and the Netherlands.One reason is the limited availability of programmes taught in English.

Overall, we expect the number of foreign students in France to increase by almost a third between 2011 and 2025. The proportion of foreign students will increase from 12% in 2011 to 14% in 2025.

The Netherlands There are approximately 50,000 foreign students in the Netherlands, corresponding to 8% of all students in Dutch government-funded higher education. Germany (61%), China (7%) and Belgium (4%) are the main countries of origin. The number of foreign students at Dutch institutes of higher education has grown fast in the past 10 years, by 253%. This growth mainly came from Germany.

German students more often go to the Netherlands to study psychology, due to the newly implemented quota restrictions for this subject in Germany.

Based on our assumption, the number of foreign students will remain stable between 2011 and 2025.

The main reason for this assumption is that the fast-growing number of Asian students accounts for only a small percentage in the Netherlands.

Most foreign students in the Netherlands are from European countries, especially from Germany.

The number of domestic students in Germany will decrease by almost 10% between 2011 and 2025.

Due to stable growth in the number of foreign students, the proportion of foreign students will increase slightly to almost 8.5% in 2025.

United Kingdom The United Kingdom universities’ strategy of recruiting higher fee payers and diversifying their income sources has resulted in rising numbers of international students. The number of foreign students increased by 147% between 2000 and 2011.

International students make up 22% of the total number of students.

With a current market share of approximately 13% of the world’s foreign students, the United Kingdom ranks second in the world (after the US) in the table of countries with the most international students.

The largest numbers of students come from Asian countries, especially from China and India. Chinese students are benefiting from a discount of around

20% compared to the period before the financial crisis in 2007, thanks to currency movements.

Students from China account for 14% of all international students in the United Kingdom, while India accounts for 10%, although this number is rising sharply. A total of 31% of students are from European countries. They come from Ireland (4% of the total number of foreign students), followed by Germany (4%) and Greece (3%).

London and the United Kingdom remain attractive for foreign students and many British universities enjoy top rankings. However, competition from North American, Australian and European universities is increasing. In addition, a change to United Kingdom immigration policy could be a greater potential risk to many United Kingdom universities and, by extension, to the student accommodation sector. The Government’s proposal to restrict the number of non-EU Tier 4 student visas for skilled graduates and migrants could have severe consequences, potentially damaging the United Kingdom’s global competitiveness and stemming the flow of international staff and students to the United Kingdom. Due to tough competition and the ‘new’ immigration policy, we believe the future increase in foreign student numbers will be lower than in the period 2000-2011. This will be the case for non-EU students in particular. We expect the number of foreign students in the United Kingdom to increase by 55% between 2011 and 2025, resulting in a proportion of 32% by 2025.

Appendix 2: Filter technique for determining the categories We used a double-sided filter technique to assess the regions. One side applies an ‘opportunities filter’ to filter out the attractive regions and the other applies a ‘threats filter’ to filter out the less attractive regions. This double-sided filter assumes that the criteria an attractive region has to meet are clear (‘opportunities filter’), as are the drawbacks that an attractive region must definitely not have (‘threats

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filter’). The regions that emerge from the latter filter are the least attractive regions. Our European regional universe is split up into a total of seven categories.

There are four categories of attractive regions, one category of neutrally attractive regions and three categories of less attractive regions. The categories are first arranged according to scale and growth.

The scale of a region is its size based on the number of households, its population density and its GDP. This translates directly to the scale of the housing market, irrespective of differences in sizes of households per region. Growth is based on the growth of households and employment. This too is directly related to the housing market. For the purpose of this analysis, we consider scale to be more important than growth, since larger markets have greater marketability and therefore a greater supply of residential real estate.

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The four attractive categories have been given the designations A1, A2, A3 and B. The regions assigned to A1 are the largest regions with above-average growth figures. Categories A2 and A3 are just a little smaller and their expected growth is also lower, but still positive. Category B contains regions that are quite a bit smaller in size but have the highest expected growth. This is based on the assumption that regions with high growth figures and a minimum size are also attractive. Category C is a residual group not selected on the basis of the opportunities and threats filter. Because they do not emerge from either filter, the regions in category C are neutrally attractive. The last category D is split into D1 and D2. Category D2 contains the regions with negative growth which are excluded based on their regional cluster classification. The group of D1 regions comprises areas with low but positive growth figures, but which are too small in scale.

OPPORTUNITY FILTER

A1

A2

A3

B

C

THREAT FILTER

D1

Category

D2

Cluster

Population density

Growth in households

Number of households

GDP (€ mln)

Growth in employment

Ratio of 60+

A1

No Agri-Industrial or Tourism

> 150 km²

>1%

>200,000

>20,000

>0%

<25%

A2

No Agri-Industrial or Tourism

> 100 km²

>0.25%

>200,000

>15,000

>0%

<25%

A3

No Agri-Industrial or Tourism

> 100 km²

>0%

>200,000

>10,000

B

All

> 100 km²

>1.25%

>100,000

>5,000

>0%

<25%

C

No selection <1%

<200,000

D1

No Agri-Industrial or Tourism

D2

No Agri-Industrial or Tourism

< 100 km²

<0%

Agri-Industrial or Tourism

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Appendix 3: Bouwfonds REIM University Ranking Source: Bouwfonds REIM Research, QS, Times and ARWU, 2012 region

major city

country

Regional European University ranking

Cambridgeshire CC

Cambridge

United Kingdom

1

Oxfordshire

Oxford

United Kingdom

2

Edinburgh

Edinburgh

United Kingdom

8

Greater Manchester South

Manchester

United Kingdom

9

Bristol

Bristol

United Kingdom

17

München

Munich

Germany

18

Unterer Neckar

Mannheim/Heidelberg

Germany

18

Utrecht

Utrecht

The Netherlands

19

Leiden en Bollenstreek

Leiden

The Netherlands

23

Sheffield

Sheffield

United Kingdom

32

Nottingham

Nottingham

United Kingdom

33

Overig Groningen

Groningen

The Netherlands

34

Göttingen

Göttingen

Germany

38

Groot-Rijnmond

Rotterdam

The Netherlands

41

Birmingham

Birmingham

United Kingdom

41

Coventry

Coventry

United Kingdom

42 42

Groot-Amsterdam

Amsterdam

The Netherlands

Südlicher Oberrhein

Freiburg im Breisgau

Germany

43

Veluwe

Wageningen

The Netherlands

45

Durham CC

Durham

United Kingdom

46

Essonne

Évry

France

46

Southampton

Southampton

United Kingdom

46

Westland

Delft

The Netherlands

47

Leeds

Leeds

United Kingdom

48

Arnhem/Nijmegen

Nijmegen

The Netherlands

50

Appendix 4: Investible universe Source: Bouwfonds REIM Research, QS, Times and ARWU, 2012 Country

Region

Major City

Residential Rating

Average university rank

Number of students in region (x1,000)

Student share1

France

Bas-Rhin

Strasbourg

A3

70

56

20%

France

Bouches-du-Rhône

Marseille

A1+

na

91

11%

France

Calvados

Caen

A2

na

30

27%

France

Côte-d'Or

Dijon

C

na

32

21%

France

Greater-Paris

Évry

A1+

46

33

63%

France

Gironde

Bordeaux

A2+

130

81

34%

France

Haute-Garonne

Toulouse

A1+

118

99

22%

France

Hérault

Montpellier

A1+

110

67

26%

France

Ille-et-Vilaine

Rennes

A2+

na

61

29%

France

Indre-et-Loire

Tours

C

na

28

20%

France

Isère

Grenoble

A1+

78

57

36%

France

Loire-Atlantique

Nantes

A1

na

55

19%

France

Maine-et-Loire

Angers

A2

na

36

24%

France

Meurthe-et-Moselle

Nancy

A3

na

46

42%

France

Morbihan

Lorient

C

na

15

25%

France

Nord

Lille

A3

168

129

55%

50

Report Investing in European Student Housing

Country

Region

Major City

Residential Rating

Average university rank

Number of students in region (x1,000)

Student share1

France

Paris

Paris

A1

75

501

8%

France

Pas-de-Calais

Calais

A3

na

28

37% 26%

France

Puy-de-Dôme

Clermont-Ferrand

C

na

38

France

Pyrénées-Atlantiques

Pau

C

na

18

21%

France

Rhône

Lyon

A1+

88

136

28%

France

Greater-Paris

Chelles

A1+

na

26

50%

France

Greater-Paris

Argenteuil

A1+

na

26

25%

France

Greater-Paris

Versailles

A1+

na

32

37%

Germany

Berlin

Berlin

A3

58

147

4%

Germany

Bodensee-Oberschwaben

Friedrichshafen

A3

na

11

21%

Germany

Donau-Wald

Passau

A2

na

13

26%

Germany

Düsseldorf

Düsseldorf

C

118

54

9%

Germany

Göttingen

Göttingen

C

38

28

23%

Germany

Hamburg

Hamburg

A3

78

80

5%

Germany

Industrieregion Mittelfranken Nürnberg/Erlangen

C

86

39

37%

Germany

Köln

Köln

A3

89

79

8%

Germany

München

München

A2

18

101

8%

Germany

Münster

Münster

A3

87

52

19%

Germany

Neckar-Alb

Reutlingen

A3

36%

Germany

Ostthüringen

Jena

C

Germany

Rheinhessen-Nahe

Mainz

A2

Germany

Rhein-Main

Frankfurt am Main

Germany

Rheinpfalz

Ludwigshafen am Rhein

Germany

Starkenburg

Darmstadt

Germany

Stuttgart

Germany

Unterer Neckar

Germany the Netherlands

67

32

156

26

25%

99

44

22%

A3

65

68

10%

C

na

13

31%

A3

114

41

28%

Stuttgart

A3

94

61

10%

Mannheim/Heidelberg

A3

18

59

40%

Würzburg

Würzburg

C

81

27

21%

Leiden en Bollenstreek

Leiden

C

23

27

23%

the Netherlands

Groot-Amsterdam

Amsterdam

A2

42

104

14%

the Netherlands

Groot-Rijnmond

Rotterdam

A3

41

86

15%

the Netherlands

Overig Groningen

Groningen

C

34

53

29%

the Netherlands

Utrecht

Utrecht

A2

19

74

25%

the Netherlands

Veluwe

Apeldoorn/Wageningen

A2

45

11

31%

the Netherlands

Zuid-Limburg

Maastricht

C

66

31

26%

United Kingdom

Belfast

Belfast

C

104

52

19%

United Kingdom

Birmingham

Birmingham

A2

41

81

8%

United Kingdom

Bristol

Bristol

B

17

51

11%

United Kingdom

Cambridgeshire CC

Cambridge

A2+

1

42

25%

United Kingdom

Coventry

Coventry

C

42

56

18%

United Kingdom

Durham CC

Durham

C

46

16

3%

United Kingdom

East Sussex CC

Wealden

C

55

33

23%

United Kingdom

City of Edinburgh

Edinburgh

A2

8

53

11%

United Kingdom

Glasgow City

Glasgow

A2

81

67

11%

United Kingdom

Greater Manchester South

Manchester

A1

9

98

20%

United Kingdom

Kent CC

Canterbury

A1+

na

44

29%

United Kingdom

Lancashire CC

Lancaster

A2

80

73

51%

United Kingdom

Leeds

Leeds

A1+

48

64

8%

United Kingdom

Liverpool

Liverpool

C

54

54

12%

United Kingdom

London

London

A1+

52

410

5%

United Kingdom

Nottingham

Nottingham

C

33

62

20% 28%

United Kingdom

Oxfordshire

Oxford

A3

2

44

United Kingdom

Sheffield

Sheffield

A3

32

63

11%

United Kingdom

Southampton

Southampton

C

46

43

18%

United Kingdom

Tyneside

Newcastle

A2

69

50

17%

1) Student share: number of students in region/population in main regional city

Report Investing in European Student Housing

51

Colophon Drawn up by

Bouwfonds REIM Research, April 2013 Dimf Ghijsels-Kerkhoff, Head of Research Roelfke Buitink-van de Pol, Research Analyst Jeroen Beimer, Senior Research Analyst Benjamin Rüther, Research Analyst

Published by

Bouwfonds REIM De Beek 18 P.O. Box 15 3780 DA HOEVELAKEN

Disclaimer Bouwfonds Real Estate Investment Management B.V. This publication has been prepared by: Bouwfonds Real Estate Investment Management B.V. or an group company thereof (hereinafter “Bouwfonds”). Bouwfonds Real Estate Investment Management B.V., has its registered office: De Beek 18, NL-3871 MS Hoevelaken, P.O. Box 15, NL-3870 DA Hoevelaken, the Netherlands.

Bouwfonds is part of the Rabo Real Estate Group.

This publication is for distribution only under such circumstances as may be permitted by applicable law.

This publication is only for the information of customers of Bouwfonds or its group companies and is provided to such customers subject to the terms of business in place between the recipient and such group company or Bouwfonds. This publication was based on current facts and conditions that can change from time to time.

The information contained herein is based on selected sources considered reliable. No republication or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. No republication is made by us as to the reasonableness of the assumptions made, or the accuracy or completeness of any models contained herein. Any opinions expressed in this publication are subject to change without notice and reflect the current judgment of the author and may therefore differ or be contrary to opinions expressed by other business divisions or group companies of Bouwfonds. Bouwfonds is under no obligation to update or keep current the information contained herein. This publication has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. It is published solely for informational purposes and is not intended to, and should not be relied upon as comprising a complete report or analysis. Bouwfonds, its group companies, employees, related accounts, discretionary accounts, or clients may have or have had interests or long or short positions (including loans) in the securities or other financial instruments referred to herein (if applicable), and may at any time make purchases and/or sales in them as principal or agent. This publication does not constitute or form part of any offer or invitation to sell or the solicitation of any offer to buy any financial instrument, provide any underwriting commitment, or make any offer of financing on the part of us, nor is it intended to give rise to any legal relationship with you or any other person, nor is it a recommendation to buy any financial instrument or enter into any transaction or financing. Neither Bouwfonds nor any of its group companies, nor any of Bouwfonds’ or any of its group companies’ directors, employees or agents, accepts any liability for any loss or damage arising out of the use of all or any part of this publication. This publication should not be regarded by recipients as a substitute for the exercise of their own judgment. No part of it may be (i) copied, photocopied or duplicated in any form by any means, or (ii) redistributed without the prior written consent of Bouwfonds. This disclaimer shall be governed by and construed in accordance with the laws of the Netherlands. All disputes arising out of or in connection with this disclaimer shall be submitted to the exclusive jurisdiction of the courts of the Netherlands. ©2013 Bouwfonds Real Estate Investment Management. All rights reserved.

52

Report Investing in European Student Housing

An outline of the dynamics, characteristics, trends, opportunities and risk/return ratios in a largely neglected real estate niche, with a focus on France, Germany, the Netherlands and the United Kingdom.

domestic students

large student share

anti-cyclical

student housing shortage

Europe

students attractive

university ranking

top destination

the bologna process

knowledge

housing

future

asian students

analyses

global prosperity

domestic

best university

investment

education

student mobility

foreign

student housing market

Netherlands De Beek 18 3871 MS Hoevelaken T +31 33 750 47 50 E reim@bouwfonds.nl www.bouwfondsreim.nl

Schiphol Boulevard 349 1118 BJ Amsterdam Schiphol T +31 20 206 66 03 E reim@bouwfonds.nl www.bouwfondsreim.nl

www.bouwfondsreim.com

Germany

France

Potsdamer StraĂ&#x;e 58 D 10785 Berlin T +49 30 59 00 9760 E reim@bouwfonds.de www.bouwfondsreim.de

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growing demand Investing in European Student Housing Report