Dutsche Real Estate Funds (DREF) reveals the results of the first comprehensive quantitative survey into the private student housing market in Germany.
North-Rhine-Westphalia (NRW) receives the highest investor demand for residential student housing in Germany. Of the 15 most popular cities, nine are located in the most densely populated German state NRW: Düsseldorf, Dortmund, Köln, Bochum, Essen, Bielefeld, Wuppertal, Mönchengladbach and Bonn. The cities of Berlin and Hamburg also offer attractive investment potential while Munich, in contrast, offers a stable market with balanced supply and demand in the student housing sector.
The survey, carried out by the independent research firm bulwiengesa AG, reveals for the first time the detailed supply and demand dynamics of the private student accommodation market in Germany. It is the most comprehensive data yet to have been published about the German student accommodation market.
“This is the first time that such comprehensive and valid data about the supply and demand dynamics of the German student housing market has been published. For investors, apart from the location and condition of a property, this is the most important criteria required to make an investment decision. This report is another major step towards professionalizing the market for student accommodation in Germany,” says Felix Bauer, CEO and CSO of Deutsche Real Estate Funds Advisor, which commissioned the survey.
Munich is the most significant market
Munich is the clear winner of this property ranking. In Bavaria’s state capital, investment and the level of demand for student accommodation are the highest, making it the most significant market in Germany. In addition, the strong activity of private operators ensures a more or less balanced ratio of supply and demand. Next in order of significance come Darmstadt, Regensburg, Frankfurt/Main and Heidelberg.
“The scoring provides a key yardstick for investors to make decisions because it contrasts past and planned investment activities with the actual level of demand. Nevertheless, each city has its own idiosyncrasies that an investor should also take into consideration,” says Felix Embacher, Divisional Head of Residential Consulting at bulwiengesa.
“Despite the intense construction activity and supply-demand balance, Munich and Frankfurt remain attractive investment locations. After all, not only is the population growing in these cities; so is the level of demand for attractive, small accommodation units. In contrast, in Regensburg the market for higher-priced student apartments is likely to gradually become saturated due to the intense activity of local property developers and contractors. In Darmstadt, due to the low level of construction activity in the past, there remains a lack of numerous residential units,” adds Felix Embacher.
Düsseldorf is the most in need of investments by investors
Of the 15 cities with the highest excess of demand over supply, nine are located in North-Rhine-Westphalia. The others include Hamburg and Berlin with Düsseldorf topping the ranking.
“Düsseldorf is a classic example of how regulatory obstacles can obstruct property development in a city. For example, if as an investor, you are required by legislation to make a parking space available for each apartment, many projects just don’t make sense and cannot be financed. This is especially true if an investor wants to create modern and affordable living space for students. In many cases this sort of legislation is becoming very antiquated an unnecessary, especially as technology continues to impact the way we live, making initiatives such as car sharing a viable and affordable option for students,” says Felix Bauer.
First comprehensive study on the privately funded student housing market
For this study, bulwiengesa analyzed all German cities with more than 7,000 students; in total, this includes 69 university cities. To ensure a reliable treatment of the data, the researchers established nine key indicators with an individual score – four on the supply and five on the demand side:
Market size (number of students)
Demand trend (growth in student figures since the 2007/2008 winter semester)
Demand forecast (forecast of student figures up to the year 2030)
Willingness to pay rent (number of students willing to pay > 300 euros for rent)
Demand for apartments (number of apartment offers received per day and offer)
Residential units for students in portfolio (number of places in privately funded student residences per 100 students)
Projection of residential units for students
Apartment portfolio (number of one-room flats vs. single-person households)
Apartment offers (proportion of total residential supply accounted for by apartments)
For the overall scoring, the supply and demand sides are equally weighted. In addition to official statistics and CBRE results, bulwiengesa also made use of its own calculations in terms of data material.
Student numbers increasing in Frankfurt, Munich, Potsdam and Rostock
In recent decades, the number of students has continued to rise to historic highs. According to the data collection of bulwiengesa, the number was up by 31 per cent in the 69 cities from the 2007/08 winter semester to the 2014/15 winter semester. The highest growth was recorded by Heilbronn (+82 per cent), Mönchengladbach (+67 per cent), Düsseldorf (+63 per cent) and Dortmund (+61 per cent).
More recently, the steep increase is attributable to two special effects (the double generations of grammar school leavers, plus the suspension of compulsory military service) and a generally higher inclination to study. The increase in the number of foreign students is an additional factor. In the long term, the number of first-year students will probably even out at a slightly lower level – apart from four exceptions: in Potsdam (+6.8 per cent), Munich (+1.1 per cent), Rostock (+1.0 per cent) and Frankfurt/Main (+0.9 per cent), the number of first-year students are predicted to continue rising until 2030.
Students in Constance most willing to pay high rent
A further indicator of demand is the students’ willingness to pay rent in a given city. As expected, this varies very sharply by region. For example, in east German university cities students pay less in rent than in west German cities or university cities steeped in rich tradition. However, surprisingly it is not Munich where the most students are willing to pay he high rents – it is Constance. Here, 87 per cent of students are prepared to spend more than 300 euros on rent. In the Rhine-Main region (Mainz, Darmstadt, Frankfurt/Main and Wiesbaden) and in Stuttgart, the students’ willingness to pay such high rent is also above 80 per cent.
Strong demand for apartments in Munich
In order to measure the demand for apartments in Munich, bulwiengesa analyzed the clicks per day for an offer on Immobilienscout24.de. The level of interest varied quite profoundly: in Chemnitz, on average an offer is clicked only twelve times, whereas in Munich the average is more than 500 clicks per ad each day. Across all 69 cities, the average click-through rate for Germany is 120 clicks per day – considerably higher than the rate for apartments with three or four rooms.
Excess supply in Greifswald, Bayreuth, Trier and Bamberg
Measuring the total portfolio size of private student residential units in a city provides a measure of how heavily private investors have already committed themselves locally. For the 2014/2015 winter semester, Bamberg (9.7 per 100 students), Greifswald (8.8 per 100 students) and Regensburg (6.8 per 100 students) reflect the highest numbers. The volume of projects already planned is highest in Bamberg, Wiesbaden and Greifswald (each >10 units per 100 students up to the year 2020). Investment in Regensburg remains strong despite there already being an excess of supply over demand.
In contrast, up to the year 2020 there will be no private residential offerings for students in 30 cities. This includes a number of east German cities, such as Chemnitz, Cottbus und Halle (Saale). However, in the traditional university cities like Lüneburg, Tübingen and Würzburg, young academics will need to resort to student unions and the regular residential housing market.
The scoring also takes account of the portfolio of apartments compared with the number of single-person households and the share of the total rental market accounted for by one-room apartments. While in some cities every third apartment advertised is a one-room flat, the share in the Ruhr region cities like Essen, Bochum and Duisburg amounts to as little as 5 per cent. Nationwide, there are 790,000 one-room flats, compared with 6.4 million single-person households. In the currently sharply expanding university city of Heilbronn, at 6.8 per cent the share is very low, as is the case in Berlin (7.0 per cent) and Wiesbaden (6.8 per cent).