BERLIN—Once thought as separate and distinct asset classes, hotels and student accommodations are beginning to blur for guests and investors.
Charlie MacGregor recognized the overlap more than a decade ago when he stayed at a hotel in Toronto during the height of the SARS epidemic. At a time when demand was difficult to come by, the hotel converted six floors into student housing to serve the handful of universities within the city.
“They had a student hotel, but they didn’t know it,” he said during an International Hotel Investment Forum panel titled “Student accommodation.”
The hotel sector has been slow to catch on to the opportunity, MacGregor said. That’s why his company, The Student Hotel, has been such a standalone success in Holland.
The concept is simple: Provide high-quality rooms and livings spaces under different lease structures to accommodate everyone from students staying year-long to parents visiting for the weekend. The business mix breaks down to approximately 80% semester rentals, 10% extended stay (two weeks or more) and 10% transient overnight hotel stays. (In the summer months, that mix flips to 60% transient hotel stays, 30% semester stay and 10% extended stay.)
“The hybrid model evolved by mistake,” having been born as a way to circumvent the residential permits required for full-time student accommodations, MacGregor explained. “I’m now completely convinced that the flexibility a hotel (model) gives us … offers a product that targets the customer needs much better.”
Area hoteliers have taken notice, the CEO said. “They’re really worried about us,” particularly as The Student Hotel brand expands from 2,000 beds in operation to an additional 3,000 under development.
MacGregor, for one, admits his concept is not a direct competitor.
“We do get some hotel guys. We get some business users that stay with us,” he said. “But we’re called The Student Hotel. The question is: How many of you guys would come in and check into (that type of asset)?”
The models blur
Hotel investors would be wise to at least peek into the student accommodation market, panelists said.
The number of students worldwide wanting a university education grew 78% to 176 million during the past decade, explained moderator Frank Uffen, co-founder of Class of 2020, a nonprofit that aims to further the professionalism and knowledge of student housing in Europe and beyond.
That number is forecast to increase to 263 million by 2025, he said.
The need for more professional, stylish and quality offerings is increasing as well, panelists said.
“It was sufficient. You weren’t looking at the student accommodation market as a potentially lucrative market, but we’ve seen quite a few changes over the past 10 years,” said Maureen McDermott, director of Maureen McDermott Consulting.
“One of the biggest trends is the recognition that students are customers, they’re not simply consumers. They don’t want to live in grungy environments. Students are very aspirational. … They look at university as though it’s a once-in-a-lifetime opportunity,” she said.
Product has evolved to fill that need. The result is an offering much closer to hotels than dormitories.
“Similar to hotels, communal spaces, very open plan, very unique. They reflect the students’ needs,” McDermott said. “They’re funky. You have sky lounges; you have intimate spaces; you have lobby areas.”
That makes it easier to accommodate traditional overnight guests as well as students in the same building, MacGregor said. There need not be separate entrances for the two, he explained.
“I walked into a Starbucks, and I didn’t see a separate entrance for a kid under 20 and a 40-year-old. We all get along together,” he said.
Mixing multiple cohorts actually enlivens public spaces, he added. Breakfast hours, dead in typical all-student housing, receive a jolt from transient overnight guests. Dinner hours, where traditional hotel guests typically venture out into the city, buzz from student activity.
When asked if traditional hotel operators are likely to enter the space with new brands, panelists all said no—at least in the short to medium term. But as major investors such as Goldman Sachs and Starwood Capital Group continue to show interest, the major brands could one day follow.