Student housing: Europe's graduation year

Europe's alternative real estate sectors have had a bumpy few years. Logistics is cooling under the weight of geopolitical trade frictions, and offices remain trapped in a slow-motion repricing. Against this backdrop, one segment has quietly built one of the strongest track records in commercial real estate: student housing. In 2025, the market staged a significant rebound, with transaction volumes surpassing pre-Covid levels – and its market share growing alongside them. Thierry Cherel and Roméo Yombo-Nguitongo at Natixis CIB Research unpack what is really underpinning this rebound, and why a modest dip in occupancy shouldn't be mistaken for a market losing momentum.

One clear sign of the sector's rebound is the scale of capital that moved into it in 2025. Investment volumes climbed well above pre-pandemic levels to €10.5 billion, as investors increasingly diverted capital away from more troubled traditional sectors and into so-called alternative segments.

That shift has a clear internal logic. Indeed, the office sector is still working through an oversupply problem born from hybrid working, while logistics demand has cooled as escalating geopolitical tensions weigh on global trade flows. Student housing, by contrast, offered a destination for capital that felt comparatively sheltered from those pressures.

However, it is worth noting that this rebound was not evenly spread. The UK, with its mature real estate market and globally respected higher education system, has for decades attracted the bulk of institutional capital into student accommodation, and the sector now represents 9.3% of the total UK commercial real estate investment market. Meanwhile, Continental Europe, despite a surge in activity last year, still accounts for a much smaller slice of overall investment, remaining below 3%. That gap is precisely why the growth in market share matters as much as the growth in volumes: it points to Continental markets catching up from a low base, rather than a UK market that has already found its ceiling.

After a rough patch in 2023 and 2024 that mirrored the broader commercial real estate downturn, 2025 marked a turnaround for the market, with returns matching the strong performances last seen in the peak years of 2019 and 2021, driven largely by favourable movements in yields rather than rental growth alone.

Prime yields in the sector have historically traded within a notably tight range, narrower even than residential, which speaks to both the resilience of the underlying income and the fact that there isn't as much stock changing hands as in more established sectors. Today, those yields sit roughly in line with industrial property, offering investors a modest but meaningful premium over residential. Unlike residential, high-street retail or office markets, student housing has also continued to offer investors a consistent spread over the cost of long-term real estate debt, a feature that has held even as broader property yields have moved around more erratically.

Those market-wide dynamics have not played out uniformly across Europe. At city level, for instance, the performance gap has been striking. Southern European cities have consistently outperformed their Northern counterparts since 2020, with Milan and Madrid delivering returns of 9.5% and 8.7% respectively – roughly three times the returns generated in Berlin (2.7%) or Paris (3.5%) over a five-year period. Much of that gap reflects starting valuations and how quickly local supply has caught up with demand, but it also reflects different demand pictures in each market.

Separately, rental growth has played a supporting role in this return story. Growth reached a normalising 3.5% in 2025, settling below the pace of inflation after a stronger period, but compared with both multifamily residential and Prime rent growth figures, student housing has tended to deliver a steadier, more measured trajectory rather than sharp spikes that risk provoking affordability concerns.

Over a longer horizon, the picture is more compelling: rent in the sector has grown by 23% over the past seven years, and crucially, student housing proved unusually resilient in 2020, a year in which both Prime and average residential rents actually declined. Since 2021, this combination of steady rental growth and yield resilience has made student housing the strongest-performing property type, ahead of offices, high-street retail, shopping centres and even residential.

Global higher education enrolment has roughly doubled over the past two decades, a continuation of a much longer historical trend of expanding access to tertiary education. Yet that growth is occurring against a backdrop of declining birth rates across much of Europe, which is gradually shrinking the pool of domestic students in many countries.

That demographic headwind is precisely why mobile students, and international students in particular, play a big role in the investment case. Domestic students who relocate within their own country for university are a meaningful segment, but their numbers broadly track national demographic trends. Meanwhile, international students are a different story: their numbers have grown at a considerably faster pace than the student population as a whole over the past decade, and their share of the total student body across Europe's major markets has risen steadily, with countries such as Austria, the Netherlands and Germany at the forefront of attracting them.

Two forces are shaping where these students choose to go. The first is the search for quality: for the rapidly growing student populations of China and India, domestic higher education capacity – even at the country's leading universities – often cannot absorb demand, pushing ambitious students to look abroad.

The second is language: the continued dominance of English-taught degrees explains why the UK, Ireland, the US, Canada, Australia and New Zealand have long been the default destinations for international students. But that dominance is being challenged from within Europe itself. Boosted by the Erasmus programme's promotion of cross-border student and academic mobility, non-English-speaking European countries are expanding their English-language course offerings at pace, led by the Netherlands, with Germany, Sweden, Denmark and Spain also making significant progress.

That shift has been supported by diverging visa policies, with English speaking destinations, including the US, Canada, Australia and the UK, tightening the door through reduced study permit quotas, enrolment caps, restrictions on student dependents and rising visa denial rates. Continental Europe is moving in the opposite direction: Germany's tuition-free universities and attractive post-study work permits, France's ambition to host 500,000 international students by 2027 with subsidised fees, and the relative affordability of Italy, Spain and Ireland are all actively pulling mobile students towards the continent.

One piece of caution in an otherwise upbeat picture is the occupancy rates dipping slightly in 2025. Country-level occupancy had remained consistently elevated, generally above 95%, for several years running, before softening across most regions last year, with the Netherlands a notable exception, maintaining its strong occupancy.

That dip is best understood as a timing issue rather than a demand problem. New student housing facilities typically take around three years to reach stabilised occupancy, and projects delivered late in the calendar year tend to sit largely empty until the following September intake.

With a record volume of new rooms delivered across Europe in 2025, it is unsurprising that occupancy softened slightly almost everywhere. Notably, the same wave of capital and development that drove the rebound in volumes and returns is also the reason occupancy dipped; the two are not contradictory signals but two sides of the same story.

Crucially, that record supply has not come close to filling the underlying gap, which is assessed through a “provision rate” – the proportion of mobile, domestic and international students combined, who could theoretically be housed in purpose-built accommodation. Across Europe, that rate remains well below the level that would signal saturation, even after last year's jump in new supply.

The more useful benchmark is not how much supply exists today, but how much a given market could realistically absorb before saturating. In this scenario, most European markets could see their student housing stock double, or in some cases increase several times over, before running into a genuine limit. That is why a record year of new supply produced only a slight dip in occupancy rather than a more troubling deterioration, and why the overall market outlook remains one of continued development rather than a sector that has run its course.

Taken together, the evidence suggests that 2025 was more than simply a year of recovery for European student housing. While offices continue to adjust to new patterns of work and logistics grapples with a more uncertain geopolitical backdrop, student housing has demonstrated that its recent performance rests on structural rather than cyclical foundations. Durable demand, persistent housing undersupply and an expanding international student population continue to support the sector, while most Continental European markets remain far from saturation despite a record year for development.

In that sense, rather than simply outperforming other alternative real estate sectors during a difficult period for commercial property, student housing increasingly looks to have graduated from a niche allocation to a core institutional asset class. For investors, the opportunity is therefore becoming less about capturing a short-term recovery and more about participating in the continued evolution of a sector that still has considerable room to grow.