In a year where real estate investment volumes have been down in most countries, one region that has continued to shine has been the Nordics. Property transactions in Sweden between January and September 2020, across all asset classes, totalled SEK133 billion (€12.7 billion), 26 per cent above the rolling 10-year average.
If anything, the Covid-19 pandemic has made the Nordics a greater focus for investors. With the growing amount of capital available worldwide, the region offers strong fundamentals, including stable and secure economies, a low interest rate environment and attractive local demographics for investors on the hunt for sustainable long-term returns.
So what might we see happening in the purpose-built student housing (PBSA) sector in these markets in 2021?
With no or comparatively low tuition fees in the Nordics, as well as favourable student loans and grants on offer, the proportion of foreign students is expected to rise over the coming years, many of whom will require high quality student accommodation that is still to be developed.
In Sweden, there were over 311,793 students enrolled in higher education in 2019/2020, of which 12.7 per cent were international. In a 2020 survey conducted by Boverket, 20 of the country's 38 university municipalities estimated that they have a deficit in student accommodation. In Stockholm only 21 per cent of students have access to PBSA. Similar supply/demand fundamentals are at play in Finland, where only 27 per cent of students live in student accommodation.
Even in Denmark, where higher education for students from outside the EU/EEA and Switzerland and/or those not participating in exchange programmes costs between €6,000 and €16,000 per year, international student numbers more than tripled from 2004 to 2016. Copenhagen in particular has a significant supply/demand imbalance of PBSA accommodation, with a provision rate of approximately 16 per cent. Meanwhile, although the Norwegian Student Organisation (NSO) is aiming for 20 per cent of the country's students to have access to student housing, the current provision rate is only 14.87 per cent.
Yields for PBSA in key cities in the Nordics are higher than many other European cities. For example, prime net yields currently stand at 4.25 per cent in Stockholm, 4.3 per cent in Helsinki and 4 per cent in Oslo, compared with 3.75 per cent in London, 3.7 per cent in Paris and 3.5 per cent in Berlin, Frankfurt and Hamburg, offering an attractive spread over long-term bond yields and multifamily yields.
While yields could compress further due to lack of assets in the market, international investors are already taking note. Recent transactions include Nuveen Real Estate making its Danish investment debut in June 2020 with a forward commitment for a 390 unit student accommodation asset in Copenhagen and Stockholm-listed Catella entering the Finnish market with a pan-European fund focused on affordable housing for students, young professionals and seniors.
Given the supply/demand fundamentals and the anticipated increase in student numbers, there will be additional pressure placed on existing accommodation. This, coupled with the attractive entry yields on offer, should see the number of international investors targeting the Nordic PBSA markets increase significantly over the next few years.
Further information
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