To understand the appeal of Europe’s student housing market for investors, look to Paris. It’s home to 18 universities, more than 50 business schools, and a café culture that has seen its student population swell to more than 400,000.

However, the ever-growing student population is chronically undersupplied with student accommodation and many of those arriving to study in the French capital struggle to find suitable digs. According to one estimate, the city needs an additional 190,000 purpose-built student accommodation beds just to meet current demand.

It’s a similar story across Europe. Growing numbers of students – both domestic and international – are applying to study in Europe’s long list of world-renowned universities. Almost every country has a shortage of student housing as a result, mostly concentrated in university cities including Paris, London and Barcelona. The current European shortfall is around three million beds, a figure set to grow by 200,000 by 2030.

That supply and demand imbalance has proven a boon for investors. Drawn by student housing’s solid fundamentals – growing demand, high rental growth and nearly full occupancy – capital has flooded into the space in the last decade. Those fundamentals have transformed Europe’s student housing sector into one of the most highly sought-after in real estate. Those fundamentals are also why, despite a difficult year for the sector in 2024, we anticipate that 2025 will see another wave of money entering Europe’s student housing market.

2024 in review

Investment in the overall European housing market fell dramatically in 2024, with transaction volumes at the lowest level in 10 years. Stubbornly high interest rates, general inflationary pressure and out-of-control construction costs have all played their part.

Despite that, the student housing sector has proved remarkably resilient, with average occupancy rates at 98 percent. During economically uncertain times like these, student numbers tend to increase as young people opt for further education over the prospects of entering a difficult job market, which has fuelled demand for an already undersupplied sector.

Rental growth has been another bright spot. Student accommodation benefits particularly well from rental growth during periods of inflation, because around 80 to 90 percent of students switch their accommodation every year, allowing asset owners to capture nearly all of that rental growth on an annual basis. Investors will likely need to keep an eye on affordability in coming years to ensure students aren’t priced out, however.

What’s in store for Europe’s student housing?

Looking to the immediate future, inflation and rental growth in student housing are likely to return to pre-Covid trends as the broader economy stabilizes. Rental affordability might put some downward pressure on rents in the short-term, but the long-term picture is one of growth. Investors will be keen not to overestimate future rents as the market settles after a period of unusually high growth.

The fundamentals, however, remain solid. Investor interest in Europe’s student housing is at an all-time high, fueled by investors looking beyond traditional sectors like office and retail, whose bumpy ride since Covid-19 continues. Investment in the UK living sector, which includes student housing, equaled investment in the office sector for the first time in 2023, heralding student housing’s arrival as a mainstream asset class.

However, high-quality assets and portfolios of European student housing are few and far between, so I expect to see increasingly intense competition for them in 2025 – along with the higher valuations that competition brings. Accommodation with strong environmental, social and governance (ESG) credentials are likely to be in particular demand, especially as owners of some existing buildings face the prospect of expensive upgrades to meet new environmental standards being rolled out across Europe. Around a quarter of the UK’s stock is expected to be affected by new energy rating rules, and France is planning to introduce its own national energy standards which will also require upgrades to some student housing.

The UK has historically been the go-to European destination for student housing investment, and it’s easy to see why. It has some of Europe’s most prestigious universities and English-taught courses, which international students favor. However, investors are increasingly turning their attention to the continent, where construction costs have leveled off and borrowing is cheaper. This points to increasing transaction volumes across continental Europe in 2025 and beyond.

Student numbers are also set to increase on the continent, which could prove a boon for demand. In part, that’s due to tighter student visa regulations in English-speaking countries outside mainland Europe. Canada, for example, decreased its international student intake by 35 percent this year and will reduce numbers by a further 10 percent in 2025. Australia will cap international student enrollments at 145,000 from next year, returning levels to pre-Covid figures. You can expect to see EU student housing benefit from international students looking for new destinations to study.

So, while investors will find themselves navigating stiff competition and rising concerns about affordability, 2025 still looks set to be another busy year for Europe’s student housing sector.