German educational infrastructure is facing growing pressure. According to forecasts, the number of pupils will increase by 430,000 by 2035. This correlates with a municipal investment requirement for school buildings amounting to approximately EUR 68 billion. Many municipalities, however, do not possess the necessary financial resources, staff, or capacities to independently implement new construction or renovation projects. Against this backdrop, educational properties are gaining increasing importance as an asset class for investors, property developers, and the public sector.
The role of private capital in expanding schools, daycare centres, and other educational institutions, as well as the establishment of educational properties as a distinct asset class, were discussed during an online press conference organised by RUECKERCONSULT. Participants in the discussion included Robert Feldt, Investment Director at CapMan, Tanja Volksheimer, Managing Director and CIO of NEXT Generation Invest, and Jan Trenn, CEO of CELLS.
In the Nordic countries, educational and social properties have been an integral part of established asset classes for several years. High government spending on education, long-term rental agreements, and the solid creditworthiness of the public sector create stable conditions for investors there. Social infrastructure in Scandinavia is not viewed as a niche market but as an integral component of institutional real estate portfolios. Robert Feldt explained that the Nordic countries have consistently invested in education for decades and possess one of the most stable public financial situations worldwide, making educational properties an extremely reliable asset class.
The market share is underpinned by the size of the sector: In the Nordic countries, between 25 and 30 per cent of the working population is employed in the public sector. This necessitates a correspondingly extensive stock of schools, universities, administrative buildings, and other social infrastructure facilities. In certain years, the segment ranked among the asset classes with the second or third largest investment volume in the real estate investment market. Feldt added that social infrastructure in the Nordic countries is one of the largest and most liquid real estate segments. Public sector tenants ensure long-term and reliable cash flows, which keeps these properties tradable and attractive for investors even during times of crisis.
The investment requirement in the German education sector has been increasing for years, while many municipalities are coming under increasing financial pressure. This situation opens up a market for institutional investors that combines social relevance with long-term stable returns. Long-term lease agreements, often public or publicly funded users, and indexed rent agreements ensure predictable cash flows and an attractive risk-return profile. Yields for school properties currently typically range between 3.8 and 5.9 per cent, which is of great interest to institutional investors in the current market environment.
Tanja Volksheimer noted that educational properties combine social impact with economic stability. Long-term rental agreements, inflation-protected revenues, and the high creditworthiness of many users generate a risk-return profile that institutional investors are increasingly seeking, particularly in volatile market phases. She estimates that the German market is still at the beginning of a development that is already significantly advanced in the Nordic countries. According to Volksheimer, educational infrastructure today encompasses far more than schools, with academies, further education centres, libraries, or mixed-use educational campuses set to play a larger role in the future. She observes growing openness on the municipal side and more professional cooperation between the public sector and private investors.
A project by CELLS in Frankfurt am Main illustrates the potential of repurposing in the educational sector. The former headquarters of Deutsche Börse, later used by Commerzbank, was converted into a school campus with over 40,000 square metres of space for several thousand pupils. The property is leased to the City of Frankfurt am Main for 30 years. Jan Trenn explained that they recognised early on that many office properties outside prime locations would come under long-term pressure and therefore developed alternative uses that met a sustainable demand. The Frankfurt school campus was completed within two and a half years and, in its final expansion stage, offers space for 3,200 pupils with 290 teachers.
Trenn pointed out that the development of a new school site on a greenfield site, in the case of a zoning plan procedure, often requires ten years or more until completion. By repurposing existing buildings, urgently needed school places could be created much faster. In addition to saving time, there were ecological benefits, as the preservation of existing buildings saved significant amounts of embodied energy and avoided demolition and new construction. Educational properties could thus make an important contribution to sustainable urban development. Demand is secured in the long term, as population growth and increasing demand for educational infrastructure are expected to continue in conurbations such as Frankfurt, creating attractive investment opportunities there.
