An increasingly mobile global student population seeking higher educational attainment has increased the demand for quality student accommodation in many of the leading university towns and cities in the Netherlands. Pension funds regard student accommodation as safe and reliable investments. This helps creates a high demand for the prime student accommodation projects we source for our clients.
Key to successful investment is the engagement of a strong Property Management Partner with experience in managing student properties. The Dutch Student Property market provides rental returns of between 5% – 8%. And return on investment up to 12% per annum (if using bank finance).
Our Student Property Investment Strategy is to source Student Accommodation Properties located in the immediate vicinity of major institutions that have high volumes of demand from the existing student population. We make sure we negotiate accommodation agreements with student accommodation officers in local universities, we target to strengthen the income stream by having leases underwritten by parents / guardians of the student tenants where appropriate. Thus protecting the positive rental return earned by such properties during economic downturns. And of course we provide investors with professionally managed buildings and spaces in a comprehensive ‘turnkey investment’ solution where the administration of the business is handled exclusively by our Property Management Department.
STUDENT ACCOMODATION MARKET THE NETHERLANDS 2016
The Dutch student housing market is in a transitional phase. The new loan system, replacing the grant system, seems to affect student numbers, at least in the short term. At the supply side many new developments are taking place and not only in Amsterdam. The result is a shift in the demand-supply balance and thus a need for careful examination of future demand. At the investor side the market is maturing further as investment volumes increase, although they generally relate to new developments or redevelopments.
Growth of the student population
The effect of the post war baby boom generation still ripples through the demographic charts. The total number of people will continue to rise to just under 2.1 million in 2020. Thereafter a gradual decline is forecasted, followed again by an increase from 2034 onwards. This trend translates quite easily to the future student population. According to the “Referentie-raming 2015” the number of students at universities will continue to grow till 2022 and then decline again. At research universities the forecasted number of students will grow by 4.6% to around 259,200 in 2022 (or +11,400), while at the universities of applied sciences the number of students will grow by 2.2% to 454,200 in 2022 (or + 10,000). Student numbers for vocational education already started declining after 2010 and between 2015 and 2022 the drop will total 20,600 students, or -4.3%. Mind that the new legislation concerning the loan system had been taken into account in these forecasts. While the total number of students at research universities has been growing significantly over the past seven years, this growth is not evenly divided over the universities. Fastest growing university is Wageningen University, followed by Leiden University and both Universities of Technology (Eindhoven and Delft).
Large increase in international students
The international attraction power of the Dutch universities remained strong and over the past 10 years the number of international students in the Netherlands almost doubled: from 41,200 international students in 2006/2007 to almost 77,900 in 2015/2016. Compared to last year the absolute growth reached 4,200 students, the largest increase since 2010/2011. This growth solely took place at the research universities, which saw an increase from over 37,600 to just under 42,000 international students (+4,400). At universities of applied sciences the numbers dropped slightly, to under 33,000.
Of the total student population international students now account for 10.7%. The share of international students at research universities stands at 16.2%, compared to 8.2% ten years ago. Within the universities of applied sciences the share increased over the past ten years from 6.6% to currently 7.4%. Mind that this share was highest in 2012/2013 with 7.8%. Looking at the total number of new enrolments the number of international students increased by 2,680 (or 8.3%), to just over 32,100, accounting for 13.8% of all new enrolments. This is the largest increase in new international enrolments ever recorded in the Netherlands.
As universities are funded on the basis of the number of students, universities promote themselves, also in foreign countries. Many of the universities are actively recruiting international students by means of PR campaigns, summer schools and even by stationing agents in the most important countries of origin. It is likely to assume that the growth of international students will continue, as Dutch universities keep promoting themselves, tuition fees remain low and the number of English-taught courses is highest of any other non-English country and is further increasing. Furthermore, the internationalisation of education becomes increasingly important and regulations for international students remain unchanged. Over the past 10 years this growth averaged just over 4,000 students annually and there is no reason to suggest this growth will soften.
The flow of capital into the student housing market took off in the second half of 2014. Dutch institutional investors as well as foreign investors capitalised on the opportunities in this sector whereas the market previously was dominated by specialist housing associations like DUWO and SSH. Syntrus Achmea was at the forefront of this trend and acquired projects in various university towns in the Netherlands in recent years. Bouwfonds is among the largest investors in student accommodations in the Netherlands and their European Student Housing fund now has over € 800 million assets under management, including a fair share in the Netherlands. International investors, operating in among others the UK, Germany, France and Belgium, saw the potential in the Netherlands and started to increase their international platforms with Dutch branches. Of all investments in the period from 2014 to current date two-third originated from abroad.
Total investment volumes reached close to € 350 million in 2015; almost double that of last year and over four times the 2013 volume. Over the past 12 months the largest transactions have been made by Greystar, purchasing the 939 unit Campus Diemen-Zuid, IC Campus purchasing the 869 unit Little Manhattan project in Amsterdam and XIOR purchasing the 143 room Carré project, located in Maastricht. Since the student housing market is in a fairly early stage and maturing, investment transactions of existing portfolio’s or single assets are rare. Therefore 90% of the total investment volume can be related to new stock. Over the past two years almost half of the investment transactions concerned conversions of former offices or other obsolete buildings into student accommodations.
The gap between net yields for direct let and head lease can be between 75 and 125 basis points. This of course very much depends on the quality of the actual object, on the quality of the operator and on the specifications in the contract between owner and operator. As more of the risks are mitigated towards the operator, the resulting yield will accordingly be lower. The expected prime net initial yield for commercial student accommodations with a long head lease agreement stands at around 5.0% (-50 bps compared to last year). For direct let prime net initial yields will start at around 5.75%. Yields have contracted over the past 18 months, but for the remainder of 2016 and 2017 we forecast them to remain fairly stable. Investors will need to see more evidence of profitable exits to adjust their bids.
As competition is increasing, location and product become even more important.