Why build-to-rent is gathering pace in Central and Eastern Europe

For many of the young people flocking to study or work in cities across Central and Eastern Europe, the choice of rented accommodation on offer is increasing rapidly.

New purpose-built, professionally-managed rental schemes are springing up in bigger cities across the region offering high-spec rooms and facilities in popular locations. And investors are taking note.

“Investors are seeing the potential that professionally-managed rental apartments and student accommodation across the region can offer,” says Maximilian Mendel, head of residential investment at JLL Poland. “The attraction of both Poland and the Czech Republic is the high demand among an educated workforce for living in major metropolises. That presents opportunities for both student housing and build-to-rent – which is really in its infancy.”

Scandinavian real estate company Heimstaden recently paid Round Hill Capital and Blackstone €1.3 billion for Residomo, the largest privately-held residential portfolio in the Czech Republic.

Interest in neighbouring Poland’s residential sector has come mainly from German (Zeitgeist Asset Management, TAG Immobilien, Catella), Israeli (Aurec Capital) and U.S. (Pimco) investors.

Griffin Real Estate, via its Resi4Rent subsidiary, Poland’s largest privately run residential-for-rent platform, has six projects under construction in Warsaw, Poznan, Gdansk and Wroclaw. With a target to build around 7,500 apartments by 2023, the platform is backed by global investment manager Pimco.

It’s the kind of build-to-rent model that Poland is likely to see more of, Mendel says.

“International investors need the local expertise and knowledge. While the local platform enjoys the backing of significant capital on the way to achieving scale.”

Changing living habits

The region’s main cities offer the potential for not only stable rental income, Mendel says, but for rental growth in markets which show little sign of the moves towards greater regulation seen elsewhere in Europe.

Much of this is down to fundamental changes to housing norms across Central and Eastern Europe. Traditionally, home-ownership has been standard practice; Warsaw’s rental market, for example, accounts for only around a tenth of the city’s total housing stock.

However – and particularly for those looking to relocate from smaller towns to the region’s major cities – buying a home has become an issue.

“This is not due simply to rising apartment pricing, but more the ability to make a down payment deposit of around 20 percent of the purchase price as own equity requirement by the banks,” Mendel explains. “Renting in main cities has also increased as a more mobile generation enters the workforce.”

Equally today’s younger generations also want their own space.

“Historically, we have been used to multiple generations living in the same apartment,” Mendel explains. “But that’s changing as young professionals become more financially independent and are influenced by what they see in other countries.”

“It’s a social trend more common in Western Europe but we’re now starting to see that more now in cities from Warsaw to Bucharest. It will change the sector.”

Living to learn

Student housing across the region is following suit, with standards improving as developers offer new, purpose-built schemes.

“The days of communal bathrooms and small shared rooms are coming to an end,” Mendel says. “Students expect better quality and more privacy – and developers and investors are responding.”

In Kraków, where students make up around 20 percent of the population in term-time, German student housing specialist International Campus began work last year on a 1,000-apartment residence under its brand, The Fizz. The concept is closer to co-living than many existing student housing schemes.

The development, part of a joint venture with Austrian investment manager Alkyon Partners, will be International Campus’ second investment in the wider region, with their debut scheme in Prague’s Holešovice district set to open this year.

“It’s early days for both student housing and professionally-managed rental accommodation but as the demand is there – and growing – it has big potential,” Mendel says. “More schemes will emerge and to a higher standard and in better locations.

“The rental market in Central and Eastern Europe still has a very fragmented ownership structure, so the level of institutionalization is low. But signs are that both sectors are catching up on trends we see outside the region.”