The 6 CEE commercial real estate markets grow in scope to include new sectors, as student accommodation has been a successful option for investors and developers in Western Europe over the past 10 years. A new report by the real estate consultancy company Colliers International and the international law firm CMS has revealed that CEE may be facing a significant shortfall in student housing in the next 10 years. Eight private purpose-built student accommodation assets are under construction across Bucharest (one project), Warsaw and Krakow.
A lack of affordability, the availability of very cheap but low-quality private houses and state-owned dormitories, and tight university budgets have all stymied development of student accommodation in CEE. The present supply of private purpose-built student accommodation (PBSA) in seven cities in the core CEE-6 markets is limited to 20 assets, with another 8 under construction across Warsaw, Krakow and Bucharest. A key demographic shift marked by strong growth in international students is shifting expectations, and perhaps affordability, towards international norms.
Investor appetite for student accommodation growing
Over 32% of investors surveyed for the report are active in student accommodation in CEE or indicated that they intend to be. Poland was ranked as the most popular market for both existing investment activity and those considering investing in the future (50% of respondents), followed by Czech Republic (28%) and Hungary (14%). According to the report, supply in many regions is falling well short of forecast demand and most CEE cities will suffer from a significant shortfall in student accommodation by 2028.
Using a demand-supply model, matching a calculated assumption of the number of international students in the city against the supply of beds, it was revealed that Warsaw will have the highest housing shortfall in 2028 (-8,399 bed deficit), followed by Budapest (-3,679), Krakow (-1,227) Prague (-1,795) and Bratislava (-298). Bucharest was the only city to have had come out with a surplus. More students in Czechia, Slovakia, Hungary and Romania live in student accommodation than the European average, according to EuroStudent VI survey data: this is despite the very low supply of private PBSA in these countries.
“Student activity and spending is not especially moving in line with an economic cycle. Thus, the end user demand is not correlated with that for sectors more tied to faster GDP growth, for example office or industrial. These characteristics are worthwhile for investors to consider right now, given that GDP growth estimates for the Eurozone (and other countries around the world) are being revised downwards, stated Mark Robinson, CEE Research Specialist in Colliers International.
Over 87% of investors surveyed believe that there is a significant shortfall in the supply of CEE private PBSA. When investors were asked about whether to build or buy PBSA products in CEE, a clear majority of respondents (74%) were prepared to develop the assets themselves rather than rely on buying ready product.
In Romania, the State offers certain facilities to investors developing private student housing projects: free right of use for public land, loans with subsidised interest of up to 25% from the local state budget and free-of-charge connection to utilities for private student housing investments.
A renewal of student housing stock on the cards?
Students interviewed for a 2017 survey expressed frustration about the low quality of housing stock across the region, with Romania receiving the highest levels of dissatisfaction when asked about housing cost, location, quality and commute. Poland and Bulgaria fared poorly on this measure as well, suggesting that the phenomenon may be regional.
With international students as a proportion of the population growing at an average of 3.6% year-on-year across the region, the report suggests a renewal of student housing stock may be overdue to attract international as well as native students, the latter whose numbers have shrunk in recent years.
“The present supply of PBSA in the core CEE-6 markets is currently limited to 20 assets. But with eight presently under construction across Warsaw, Krakow and Bucharest, development activity in the sector is growing, as investors begin to realise the sector’s potential. With steady investment yields of 5-7% across Europe and strong demand shown by international students for CEE assets, the potential for development is enormous, although affordability remains an issue,” Wojciech Koczara, CEE Head of Real Estate and Construction at CMS commented.