According to the latest French student housing report from international real estate advisor Savills, growing investor interest and limited supply has put downward pressure on prime yields causing them to move in by 20 basis points in the last three years. Currently ranging from between 5.3% and 6.5% this compares to 5.5% to 7.0% in 2012.

Marcus Roberts, head of student housing investment at Savills, comments: “Although the share of student housing investment remains marginal compared to the total commercial property volumes and requires a degree of specialism, there is a clear potential in the sector for strong returns. The shortage of supply while demand is on the rise offers good investment opportunities with achievable yields above the traditional residential and commercial sectors.”

Savills notes that total investment volumes in French student housing in 2014 was down to €55 million compared to the €211 million reached in 2013. However, the firm does find that investment activity is very much driven by new developments and forward funding. The lack of both in 2014 restrained the investment opportunities. Going forward into 2015 Savills expects the investment volume to range between €80 and €100 million, in line with the past five-year average as investor interest for the segment is growing rapidly. In comparison, UK student housing investment in the first quarter of 2015 reached £3.5 billion. Savills is currently advising on a number of sales mandates in France, including one in Bordeaux and Chambery.

Between 60% to 70% of stock is owned by private investors or occupiers in split ownership structures, finds Savills. Additionally it remains primarily a domestic market with 72% of all investment in 2014 driven by French investors. However, it is slowly opening up to international parties, notably the Dutch, representing 16%, the UK at 7% and German investors who invested 4% in 2014.

Savills finds that the average national student housing rent ranges from €457 per month for a studio and €542 per month for a 1-bedroom apartment. Over the past 12 months rents have increased by 3% in Ile de France and by 2% in regional markets, according to research by OVE.

Lydia Brissy, director of research at Savills, adds: “We have seen enrolment in French universities rise over the past four years and have seen a greater importance placed on higher education by young people. In addition, recent changes to the visa system have made France a more appealing choice for international students as well as having some of the lowest tuition fees in Europe. Investors are aware of these factors and therefore see the growing appeal of the sector. However, whilst the lack of supply is helping to put downward pressure on yields it may also hinder the growth potential of the sector. This imbalance will need to be addressed before we can see any consistent growth in investment volumes.”

Download the full report here.