With a shortage of student halls places and the suspension of national service in Germany this summer, which is expected to boost student numbers, international real estate advisor Savills believes the student apartment market is ripe for investment for both risk-averse and opportunistic investors.
According to the firm in the last 10 years the number of students in Germany has increased by some 18% to more than 2.1 million with only 181,000 places available in publicly funded halls of residence.
Savills researchers have carried out a survey of 51 German student cities in terms of their macro-locational investment risks and find that Darmstadt, Munich and Hamburg offer the lowest risk for investors.
The survey looks at German cities with at least 10,000 students and applies a scoring model with nine indicators to evaluate the status quo and market dynamics of the 51 surveyed cities. The indicators include market size, supply of student halls, apartment vacancy rate and income burden to measure status quo, and market attractiveness (percentage variation in average apartment rents 2004-2010), demand trend and demand projection, population projection and economic prosperity to measure market dynamics.
It finds that Darmstadt, Munich and Hamburg score between 8.2 and 8.0, offering the lowest risk for investors, while Halle (Saale), Braunschweig and Magdeburg are revealed as the highest risk cities with total scores ranging from 3.3 to 3.6 on Savills' scale.
Matthias Pink, Head of Savills Research in Germany, says: "There is some evidence that both the high-risk and low-risk locations include markets that are under-valued and investors would be wise to take a closer look at these. The vast majority of students prefer a rented apartment, which underlines the latent potential for private investors."
Savills' findings can be divided into four different risk groups: weak markets with the opportunity to become strong, core markets, 'black swans' and established markets with the opportunity to remain strong. The 'black swans' category shows an above-average risk in terms of both status quo and dynamics and the probability that an investment will result in a favorable exit scenario is markedly low, but the potential returns if this does occur are very high.
Pink comments: "The most promising investments would appear to be in those markets currently showing below-average conditions combined with favorable development prospects.
"Opportunistic investors may rely on these markets to become core over the next few years, but even cities where this situation is reversed should appeal to opportunistic investors."
Overall Savills believes that investors will show increased appetite for student apartments in the coming years although due to the limited market size they will remain a niche investment.