No room at the inn: Central Europe student housing crunch attracts investors

Corestate Capital Holding SA

19/10/2018 11:04

* Foreign students flock to central European universities
    * Shortage of modern residences and private student housing
    * Investors see potential in new student housing projects

    By Michael Kahn
    WROCLAW, Poland, Oct 19 (Reuters) - Wroclaw's hulking
Soviet-era public dormitories held little appeal for Odysseas
Savvas when he moved to the Polish city from Greece to study
business at university. Instead, he opted for his own room and
bathroom in a newly built private residence.
    "The other dorms were really old from the communist times
and really simple," Savvas, 19, said. "I couldn't be comfortable
sharing a room and a bathroom with four people."
    Investors and developers sizing up the potential for new
student housing projects in central and eastern Europe believe
there will be many more foreign students just like Savvas
willing to pay extra for their creature comforts.
    That's why the company behind the new residence in Wroclaw
which has a gym, private kitchens and big-screen TV in the
communal area, is planning to quadruple the number of student
housing projects it runs in the next two to three years.
    Central Europe's old world charm and tradition-steeped
universities are increasingly attracting international students
eager to study in English-language degree programmes for a
fraction of the cost back home.
    It's also creating a housing crunch with many older
dormitories filled to capacity and students snapping up rooms in
 private residences such as the nearly 500-bed residence in
Wroclaw, which opened in September.
    "We can see the demand is there," said Nebil Senman,
managing director of Griffin Real Estate https://griffin-re.com/en
 which operates the residence in Wroclaw and is backed by Los
Angeles-based Oaktree Capital Management  OAK.N . "We are
currently over-subscribed."
    "In the last six months I've really seen the market pick up.
There is more demand from international investors approaching
us. This is something we are considering," said Senman, who
oversees four student housing projects in Poland at the moment.
    
    SIMPLE ECONOMICS
    In Poland, the region's biggest country and largest economy,
the number of international students has surged more than
four-fold to almost 57,000 in the past nine years, according to
government statistics compiled by StudentMarketing http://www.student-market.com/home.
    It has jumped 72 percent to 38,868 in the Czech Republic
while Hungary's international student population has doubled to
nearly 27,000 over the same period. 
    For investors it's simple economics. More students and not
enough beds in cities where development costs are lower than in
western Europe means higher yields on new projects than in more
mature western European student housing markets.
    "Central and eastern Europe is on the radar of those big
investors who have established their presence in western Europe
and it is a natural next move for them," said Stefan Kolibar,
head of marketing at StudentMarketing, an independent research
company focused on student housing data.
    "The region is even more under supplied with not as much
volume," he said. 
    Kolibar said the percentage of private beds to international
students was 5 percent in Prague, 1 percent in Warsaw, 9 percent
in Wroclaw and 13 percent in Budapest compared to 16 percent in
Barcelona, 55 percent in Amsterdam and 30 percent in Dublin.
    In Budapest, Austrian company value one http://www.value-one.at
 opened the 418-apartment Milestone project last year offering a
roof-top terrace, high-speed internet and a fitness room.
    It now has its sights set on the Czech Republic and Poland,
which entered the top 10 destinations for the Erasmus programme
http://ec.europa.eu/programmes/erasmus-plus for international
students, a spokeswoman said. 
    "Both markets are interesting for us because they offer a
high number of students from all over the world and they are
near our home market," said spokeswoman Caroline Hadl.
    
    HEDGING YOUR BETS
    Investors such as Corestate Capital Holding  CCAG.DE  see
student housing as a durable asset because of the perpetual
pipeline of domestic and international students, said Philipp
Rohweder, one of the company's investment directors.
    His firm is keen to invest in projects in central Europe,
especially Poland where a thriving student population, years of
economic growth and a stable currency provides opportunity for
investors in an emerging market.
    The country of 40 million people also has a large number of
university towns attractive for investors who want to establish
a network of student housing projects, he added.
    "Student housing is hedging your bets against other economic
cycles because when the economy is good everyone wants to study
and when it isn't everybody has to study," said, adding that he
hopes to have a deal for a 1,000-bed project secured this year.
    Low costs are a big draw for students. Yearly tuition at
Prague's Charles University https://www.cuni.cz/UKEN-1.html is
about 6,000 euros ($6,950) per year for a degree program, far
less than in most universities in the United States and Asia.
    Commerz Real https://www.commerzreal.com/en, a subsidiary of
Germany's Commerzbank  CBKG.DE , launched a 500 million euro
fund in August aimed at tapping into the European student
housing market.
    The fund's manager, Heiko Szczodrowski, sees fast-growing
central European cities such as Warsaw, Prague and Budapest as
attractive potential targets: "We don't have a property in the
fund but we want to change that soon."
    
    'THE RIGHT TIME'
    In Prague, enrolment in the Erasmus programme at Charles
University has surged from less than 200 at the turn of the
century to nearly 2,000 today, said Beata Tomeckova, who
coordinates student housing.
    Average monthly rent for a single room in private student
residences is 299 euros in Prague, 238 euros in Budapest and 176
euros in Warsaw, according to data compiled by StudentMarketing.
    That compares with an average 627 euros in Barcelona, 760
euros in Milan and 870 euros in Dublin.
    "We have an increasing number of students but there are  
limits and some students may not get a place in the
dormitories," Tomeckova said.
    Alexander Gulya, managing director for international
acquisitions at International Campus https://www.ic-campus.com/en/home,
 which is controlled by Canada's Brookfield Asset Management
 BRE.TO , is planning a 550-bed dormitory in Prague's trendy
Holesovice district.
    It started a project for a 1,400-bed residence in Budapest
in April and a 1,000-bed dorm in Krakow in July. The company is
also targeting Warsaw in the central European region where Gulya
said it was possible to see attractive yields. 
    "We believe it is the right time to reach out and find
chances in higher yielding markets especially in an asset class
where there will be future demand," he said.
    "But we should not forget that student housing is at a very
early stage in this region and those going to CEE need to take a
strong entrepreneurial view.
   ($1 = 0.8648 euros)

 (Reporting by Michael Kahn; editing by David Clarke)
 ((michael.kahn@thomsonreuters.com; +420 224 190 443; Reuters
Messaging: michael.kahn.thomsonreuters.com@reuters.net))