European PBSA investment volume reaches record €11.7 billion, a 130% increase year-on-year

Bartosz Cisło, Associate, Corporate Finance & Valuation at Savills
Bartosz Cisło, Associate, Corporate Finance & Valuation at Savills

According to Savills, the total investment volume for Purpose Built Student Accommodation (PBSA) in Europe reached €11.7 billion in the first three quarters of 2022, a 130% increase on the same period in 2021 and a record high.

Investor interest in the sector is being driven by a rising number of students attending university, as well as strong growth in international students who heavily rely on PBSA. Savills expects this growth to continue over the coming years, as the number of young people in Europe (15-19 year olds) is forecast to rise by 5.8% by 2027. At the same time, many European markets have a significant undersupply of PBSA, which is driving strong rental growth. The average provision rate – the total number of beds divided by the total number of students – across European cities is currently only 12.5%, down from last year’s 13% figure.

Across the European cities Savills monitors, approximately 14,500 PBSA new beds are expected to be delivered in 2022, not enough to compensate for the increase in student numbers. On average, across Europe, the public student housing market represents 63% of total PBSA beds, meaning the vast majority of existing stock is outdated and of relatively poor quality compared to newer private stock.

The Polish PBSA sector also has strong growth fundamentals. Poland has the sixth largest student population in Europe (approximately 1.2 million) but just under 100,000 beds, only 10% of which in modern private student houses. Depending on the city, only between 1% and 5% of students can be accommodated in modern facilities.

This supply/demand imbalance is attracting more and more investors to the sector. According to a recent survey conducted by Savills involving real estate investors with total EME assets under management exceeding €500bn, European PBSA is one of the top five sectors that investors are looking to target over the next 12 months.

Lydia Brissy, Director European Research at Savills, says: “The share of forward-funding deals as a percentage of total European PBSA investment has been steadily rising over the past five years, accounting for 30% of the total volume in 2022. Forward-funding deals are typical in countries with developing PBSA markets and limited available stock.”

According to Savills, the average prime PBSA yield across Europe currently stands at 4.15%. This ranges from 3.5% in Copenhagen to 6.00% in Seville. Yields have remained stable over the past 12 months.

Marcus Roberts, Head of Europe – Savills Operational Capital Markets, says: “The PBSA sector has continued to show that it is counter-cyclical and provides a good opportunity for investors to balance their portfolios in times of economic downturn. It is a strong asset class and the positive sentiment in this sector demonstrates the confidence investors have in its resilience and ability to provide secure returns.”

Bartosz Cisło, Associate, Corporate Finance & Valuation at Savills, says: “The Polish PBSA market is far from saturated. In addition, the rental housing market is currently red hot due to declining creditworthiness, rising interest rates and demand coming from Ukrainian refugees, which is further compounding the shortage of beds in student houses. The beginning of the current academic year has probably been the hardest ever in terms of finding student accommodation. This has translated into unwavering investor demand for this asset class. The large share of international students as a percentage of all tenants makes for collecting some rent in the euro, which is opening up an opportunity of financing PBSA projects in this currency. While existing platforms are being extended, new players are entering the market with their first projects.”