Has the Copenhagen market for student housing finally reached saturation point?

By Martin Hedegaard Christensen, Associate, Copenhagen 

It happens without fail: Every year at term start after the summer holidays, the news media rerun reports of students lacking housing. A new Colliers’ analysis shows that within a matter of some years these reruns may cease and be replaced by real breaking news: there are now enough student dwellings for all Copenhagen students.

This conclusion is based on the findings of an analysis of the current supply of student housing units, developments in the student count, student housing development activity as well as prospects of new regulations.

Almost 2,000 new rooms in student halls in ten years

Thanks to its large offering of educational programmes and institutions, Copenhagen has a substantial annual influx of new students, domestic and international alike, with a resulting surge in demand for student housing. The media coverage is massive, overflowing with reports of home-hunting students resorting to couch-surfing or staying at home with their parents. The same story happens year after year, painting a picture of a metropolis marred by a supply and demand imbalance in student housing.

It is true that many students may still look in vain for student housing; nevertheless, the scenario has changed significantly in recent years.

Historically, the student housing market has been fronted by social housing organisations while the local authorities have been responsible for ensuring the availability of housing for all students. Recent years’ housing shortage has, however, clearly demonstrated that these players have not been able to meet demand on their own accord. This has made an increasing number of private-sector players, including institutional investors and international property companies, become active in this segment of the market.

As a result, recent years have seen the completion of a great many student housing schemes. In addition, the current pipeline suggests that many new student housing units are scheduled for completion in or around Copenhagen in the coming years. At the same time, the City of Copenhagen intends to increase the supply of student housing in Copenhagen. To this end, the City of Copenhagen has earmarked some DKK 400 million of municipal contributed capital for the construction of social housing for young people.

2019 studieboliger grafer UK 2 NY

Recent years’ new construction activity has been exceptionally brisk in the housing sector. In 2016-2018, the volume of residential completions exceeded 525,000 sq m annually in Greater Copenhagen, with a record-breaking high of more than 800,000 sq m in 2018 alone.

Similarly, the same period saw the completion of some 1,580 student hall rooms, equivalent to approx 10% of the current stock of 16,150. Since 2017, for instance, about 1,000 student housing units have been developed in the central district of Nørrebro and about 420 units on the Copenhagen island of Amager.

In addition, several student housing units have been built in the city’s development areas, including Sydhavnen (the South Harbour). As a phenomenon, the development of student housing has therefore left a highly visible mark on the Copenhagen cityscape in recent years.

Change in market fundamentals
In previous years, the demand for student housing was driven largely by an ever-increasing student count in and around Copenhagen. Since 2010, the student count has increased by some 47,750 in Greater Copenhagen, corresponding to an increase of 24% overall and approx 2.4% annually.

However, student-count growth has slowed in recent years: The number of students increased by only 0.30% between 2018 and 2019. Based on projections of the number of 20-29-year-olds in Greater Copenhagen, the student count is expected to level off. In fact, it is predicted to drop by approx 0.5% by 2030, driven mainly by a decline in the youth population of future generations.

Given the stagnating student count, a strong pipeline of new student housing developments and recent years’ high volume of student housing completions, the Copenhagen market for student housing has fundamentally changed. Compared to its position in the market cycle just a few years ago, the segment has seen a shift towards a stage where the supply and demand gap is closing, and where “easy pickings”, or fast profits, are becoming scarce.

2019 studieboliger grafer UK 3 NY

2019 studieboliger grafer UK 4 NY

Backlog demand may prevent market saturation
Irrespective of the decline in the Copenhagen student count, the demand for new student housing is believed to remain strong for some time to come. The main driver of future demand is expected to be the backlog of demand caused by the past and present student housing shortage. In other words, many students will opt for their own student dwelling if possible, rather than rent a room, share a flat, be on long waiting lists for a room in in a student hall, etc.

According to a YouGov survey, approx 37% of students have opted for co-habitation in relatively large flats. Amongst other things, this ties in with the shortage of small affordable flats in Copenhagen where the main emphasis has been on the development of large-size units in recent years. From 2016 to date, approx 11,150 flats of 75-149 sq m but only 1,400 smaller flats have been completed.

Co-habitation in large flats is often considered an alternative solution or last resort for some home-hunting students.

Next to co-habitation, staying at home is the solution preferred by students. Approx 25% of Copenhagen students, equivalent to some 25,000, opted for this type of accommodation in 2019, for the same reasons as those cited for co-habitation, that is, the weak supply of student housing and fierce competition with some 300,000 single-person households, often financially better off than students, for the weak supply of traditional small flats in Copenhagen. As conditions in the student housing market improve, this group of students is expected to enter the student housing market in future, increasing overall demand.

A market with possibilities but also challenges
Due to the exceptionally strong demand characterising the student housing market in recent years, the focus has so far been on short construction periods, often at the expense of factors such as quality in construction and location.

Because of a relatively small stock of student housing, units have been snapped up regardless of location or quality, often at relatively high rents. This imbalance has translated into exceptionally high turnover rates, virtually non-existent vacancy rates and high rent levels across the Copenhagen student housing market.

If the current pipeline is held up against the City of Copenhagen’s vision to boost the current stock of some 15,300 student housing units to about 26,850 units by 2031, the rental market for student housing is expected to see fundamental changes. At the same time, the City of Copenhagen has hinted at easing the minimum size requirements in connection with residential newbuilding.

As the supply of student housing increases, the market for student housing is expected to become increasingly aligned with the traditional housing market in terms of more pronounced segmentation and a spread in the rent levels commanded by first-rate (prime) and secondary housing, respectively. We believe that location will become the future key determinant as a wider offering will make it possible for students to pick and choose between different student dwellings.

Overall, the student housing market is still believed to be an attractive sub-market of the residential sector for development and investment. However, in view of recent years’ new construction of student housing in Greater Copenhagen, the current pipeline and stagnating student count, the future market is expected to be characterised by caution and greater focus on key factors such as quality in construction and micro-location, including access to good shopping opportunities, cafés, infrastructure, attractive shared facilities, etc.

FACTS
In Denmark, student housing is only rarely concentrated on campus or next to the grounds and buildings of a university, college or school. Instead, students can rent a room either in a student hall of residence (“kollegium”) or in a privately owned house or flat. Some students share a privately rented flat. Alternatively, students may rent a room or flat in student housing complexes, owned by a property investor, e.g. a pension fund. In Copenhagen, the waiting lists for student hall rooms (which are typically the least expensive) are managed by KKIK (Student and Youth Accommodation Office Copenhagen) and CIU (Centralindstillingsudvalget).


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Martin Hedegaard Christensen

Associate

Copenhagen

Martin’s primary tasks are to prepare detailed market analyses and valuations of commercial and investment properties as well as advise clients on strategic investment decisions.

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