a billion-dollar business on the rise across Europe

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Most European cities do not have a strategy to address the housing shortage for students, whose number is constantly increasing. VPhoto by Pascal Guyot, AFP

Two years ago, the largest private domestic residence providing student accommodation was completed in Prague’s Holešovice. In this way, a pan-European phenomenon, which originally appeared in Great Britain and which responds to the insufficient policy of states, cities and universities, has penetrated the Czech Republic: student housing has turned into a commodity attractive to private capital.

In Dublin this year, first year students set up tents on campus before the start of term. In Bologna, at Europe’s oldest university, they spent the first few nights at the station again out of necessity. In Berlin, just over five percent of students make it to a public college. In Prague, where dormitory capacities have long been insufficient, due to inflation and rising energy prices, most universities have already announced price increases before the semester.

The lack of apartments and beds in halls of residence allows private student residences to provide rooms at twice the price of universities. But how did student residences become such an attraction for investors and what distinguishes them from the construction of ordinary apartments? And what impact could the entry of investors in this area have on the shape of European university cities, including Prague?

A vicious circle

A total of eighteen million students in the European Union suffer from unaffordable housing. At the same time, the number of students in general is constantly increasing, between 2013 and 2020 by 8.8 percent. Their mobility is also increasing, which means that living with their parents is no longer an option for an increasing number of them. The lack of housing availability therefore begins to represent an obstacle to the study itself.

“Students suffer from rising rent prices especially in larger European cities — that is, where most universities are,” says the European Students’ Union (ESU) in its report from -2019. According to her report, the problem is caused on the one hand by a lack of public accommodation for students and on the other by a lack of apartments on the market in general.

It is a vicious circle: increasing numbers of students in the cities contribute to the increase in rent prices, which then also affects them, because they cannot afford housing. “Even the covid pandemic has not significantly reduced demand,” comments Julia Momotiuková from the consulting firm Bonard, which deals with housing rentals. As of 2021, numbers have returned to pre-pandemic levels.

Of course, the answer to the problem could be to strengthen the capacities of the dormitories. However, many cities fail in this. Prague also lacks a comprehensive strategy to solve the lack of student accommodation capacity. The gap is therefore now being filled by private investors.

Britain as a laboratory

Research report The 2021 Bonard report indicates that the European private student housing market exceeded €8.8 billion in terms of investment. Of these, 3.7 billion in Great Britain alone, which at the same time leads the market among investors. British companies are among the largest providers of student accommodation.

High rental prices and a number of prestigious universities — this is what makes London a great investment opportunity. After all, it is also at the top of the ranking in terms of the number of private beds in relation to the number of students.

Great Britain is possibly an example of what other university cities that suffer from the lack of housing affordability are heading towards. Student dormitories with small rooms are more attractive to investors than regular apartments: they generate more income per square meter of building land than larger apartments for families.

British consultancy firm Select Property Group sums it up, promising “the highest income and the most stable demand” on its website. And this is also confirmed by the data of the analytical company Savills. It follows from them that investments in the student housing market earn more on average than ordinary rental apartments. It is in Prague that the return on investment in student accommodation is one of the highest ever.

Students as a target for investors

The student residences reflect a wider trend of so-called “micro-housing”, as experts call the new developments on the rise: small apartments in profitable locations, fully equipped and rented for short periods. They earn more per square meter than regular apartments, and due to the nature of the contracts, it is easier to raise the rent in them.

These complexes usually target a more lucrative clientele, which can also apply to a number of students from wealthy families. Also, Czech residences of this type are aimed precisely at foreign students, who can afford higher prices, or who, compared to Czech ones, have more difficulty finding an apartment in the classic rental market.

In addition, the number of international students is generally increasing. Between 2013 and 2018, they increased by twenty-four percent in Europe, according to UNESCO data.

This also applies to the Czech Republic. Data from the Ministry of Education shows that the number of foreign students in Prague has grown from year to year over the last ten years. In 2021, they would make up twenty-two percent of the total.

Privately, student housing complexes are in many ways more like hotels than ordinary tenements. The contract offered also corresponds to this. The aforementioned FIZZ residence in Holešovice offers students a so-called accommodation contract — that is, a contract used in hotels or hostels.

Although the contract does not change anything in terms of fiscal obligations, it does not have the same tenant protection mechanisms as in standard leases — ie, for example, a three-month notice period or a duration of minimum contract period. “The market is moving towards hotel accommodation,” comments Professor Thomas Beyerle, head of research at Swedish developer Catella.

And it’s far from just students. “Around Europe, 20 to 25 percent of those who live in similar complexes are young professionals – people with suitcases on bicycles who travel between Munich and London,” adds Catella. According to him, it was this group that became the target of investors.

The student residence market is increasing, especially in cities such as Paris, London, Leeds, Bristol, Berlin or Dublin, which show the most projects currently under construction or in the planning phase. But the boom is also affecting other regions.

Foreign companies with unclear owners are investing in Prague

According to the analysis firm Savills, the youth population is growing rapidly in the cities of Central and Eastern Europe — Prague, Warsaw, Wroclaw, Krakow and Berlin. In many of them, the number of students is increasing disproportionately.

It is in Central and Eastern Europe that the rent in student residences is increasing most significantly. According to the consulting company Bonard, the highest increase is in Lithuania, followed by Latvia, Poland and the Czech Republic.

For example, in Poland, according to Bonard analyst Julie Moomotiuk, the market is “still starting to develop”. The lack of competition therefore allows investors there to inflate rents, while elsewhere they are more cautious.

In the Czech Republic too, student complexes can be described as a fairly new and emerging trend. As we mentioned, the Holešovice FIZZ complex was completed only two years ago. It falls under the international network of similar projects of the company International Campus, which also builds student residences in, for example, Berlin.

It implemented the Prague project together with the developer Karlín Group. According to the cadastre, the owner of the building is the Czech company IC Prague Party sro, a subsidiary of the Luxembourg company IC FIZZ Prague I S.à rl. In the Luxembourg register of the final owners of the companies — even before it ceased operations in November — we could only learn the names of the company’s managers.

Another important player in the market is the investment company Zeitgeist Asset Management, which, in addition to student housing, specializes in the renovation of old apartment buildings in profitable locations. It states on its website that one of its investors is a German pension fund.

Under the Zeitraum Student Housing brand, it also builds student residences in other countries, especially Poland. Right in Prague residence in Průhon, Seifertov, Na Šachta and Holandská streets. The ownership structure of this company also ends in Luxembourg. And from the register we can learn again only the names of the managers.

Where the state fails, investors come

Public sector failure is an opportunity for the private market. The growing number of students, especially foreign students, the lack of available apartments and the low capacity of university dormitories — all this makes student housing a great investment opportunity.

But is this a problem? If so, in what? A frequent argument is that student residences, even if they cost much more, will ease the tight market. After all, many students from wealthier families can afford such accommodation. And by doing so, they essentially “free up” places in other capacities for those who cannot.

However, the case of London shows that the mechanisms in the housing market work in a different way. Even the new construction of student housing by private investors from the city has not made it a more welcoming place where everyone can afford to study. In addition, student residence buildings have an impact on the shape of the neighborhood they are located in: whether it is an increase in current rents or services for local residents.

It is always appropriate to ask what volume of finance and where exactly it flows in the housing sector — that is, for what and for whom it is being built. This has a fundamental effect on its overall appearance. Especially if there is a lack of counterweight, ie the construction of publicly available houses, both for students and for the rest of the city’s inhabitants. The trend of micro-houses undoubtedly brings investors higher profits, but this is done at the expense of the construction of ordinary apartments.

While more and more young people are leaving to study abroad — and public policies are supporting them — the city’s infrastructures are not ready for them. Investors do.

The article was created as part of the European Cities Investigative Journalism Accelerator project, a European media journalistic network that focuses on topics that connect European cities. The project was financially supported as part of the Stars4media program.

The City/Forum project for a more tolerable daily life is the result of a collaboration between the collective 4AM, zs and the Center for Media, Ecology and Democracy, zs (CMED). It is financially supported by a grant from Iceland, Liechtenstein and Norway.

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