Market Dynamics Signal Strong Investment Potential

Florence’s rental market has reached a pivotal inflection point that presents exceptional opportunities for forward-thinking investors. With regard to investments, investor interest remains strong in Build-to-Rent (BTR) and Build-to-Sell (BTS) developments, as well as in the Purpose-Built Student Accommodation (PBSA) and serviced apartment segments, according to Cushman & Wakefield’s latest Italian real estate outlook.

The numbers tell a compelling story: single rooms in Florence now command an average of €606 per month, representing a remarkable 59% increase over four years. While this might initially appear concerning, it actually signals a mature, undersupplied market ripe for institutional investment.

The Shortage Creates the Opportunity

Florence currently suffers from a critical shortage of purpose-built student accommodation. In Italy, in 2020, we acquired two buildings in Florence, a former clinic and an office building. The first, S4, (111 beds) opened in September 2022 and the second, Il Santo (220 beds) in May 2023. These deliver modern PBSA facilities hitherto unavailable in the historic centre of Florence, notes Domatia, a leading PBSA specialist.

This shortage has created a scenario where demand significantly outstrips supply. The recent 6% decline in rental demand isn’t a market weakness—it’s a temporary adjustment to pricing that opens the door for professional investors to capitalize on the supply-demand imbalance.

Why Professional Investors Should Act Now

Proven Market Fundamentals Average gross rental yield in Italy stands at 7.27% (Q3, 2025), making it one of Europe’s most attractive rental markets. Florence’s premium positioning within Italy’s university ecosystem ensures sustained demand from both domestic and international students.

Infrastructure and Policy Support The combination of reasonable prices, attractive mortgage rates, strong rental yields, and upcoming infrastructure improvements creates multiple opportunities across different market segments. Italy’s current favorable financing environment, with average mortgage rates fell to 3.22% (-76 bps YoY), boosting loan uptake, creates optimal conditions for leveraged real estate investments.

International Capital Flow Luxury real estate deals recorded a 64% increase over the first half of 2023 in Tuscany, while Americans representing 29% of foreign purchasers and favorable financing conditions, the timing couldn’t be better for international investors seeking European real estate exposure.

The PBSA Investment Thesis

Purpose-Built Student Accommodation represents a particularly attractive subset of Florence’s rental market. PBSA, an acronym for Purpose Built Student Accommodation, represents a specific category of real estate tailored to meet the unique housing needs of students, offering several investment advantages:

Stable Income Streams Unlike traditional residential rentals, PBSA typically offers longer-term contracts aligned with academic years, reducing vacancy risks and providing predictable cash flows. PBSA is often delivered by private companies or investors to meet rising student numbers, creating a defensive investment characteristic even during economic downturns.

Premium Pricing Power Modern students increasingly demand high-quality accommodation with comprehensive amenities. The fully furnished accommodations in the city come with various amenities, such as laundry, social spaces, TV, iron, and so much more, allowing PBSA operators to command premium rents while maintaining high occupancy rates.

Strategic Investment Considerations

Market Positioning Florence ranks as Italy’s third most expensive student city after Milan (€732/month) and Bologna (€632/month), but significantly underperforms in terms of modern, purpose-built accommodation supply. This creates an arbitrage opportunity for investors who can deliver institutional-quality student housing.

Demographic Tailwinds Across Italy, about 620,000 students are on the hunt for private rentals. This is partly because international students prefer renting due to their short-term stay. Florence’s position as a premier destination for international students studying art, design, and Renaissance studies ensures continued demand growth.

Regulatory Environment Foreigners can buy, sell, and rent out real estate without restrictions in Italy, while recent policy changes favor long-term rental investments over short-term tourist accommodations, creating a more stable operating environment for student housing providers.

Investment Outlook and Returns

Near-Term Prospects Investment volumes in Q2 2025 reached €2.5 billion, up 56% compared to the same period last year, demonstrating strong institutional appetite for Italian real estate. The living sector, which includes student accommodation, continues to attract significant capital flows.

Long-Term Value Creation Emerging cities such as Bologna, Verona and Genoa still offer competitive prices compared to large centres, with growth prospects in the medium to long term. Florence’s established position as a global education hub provides downside protection while offering upside potential as the city continues modernizing its accommodation infrastructure.

Operational Excellence We major on design, quality and health & safety standards expected by universities and international students, highlighting the importance of institutional-grade development and management in capturing premium returns.

The Bottom Line

Florence’s student housing crisis represents a classic supply-demand imbalance that sophisticated investors can exploit. With rental prices having reached sustainable levels, regulatory support for long-term rentals, and a critical shortage of modern accommodation, the fundamentals have never been more compelling.

For Italian investors, this represents an opportunity to capitalize on local market knowledge and regulatory familiarity. For international investors, Florence offers a gateway into Europe’s most attractive rental market, backed by centuries of educational heritage and continuing demographic growth.

The question isn’t whether Florence’s student housing market will grow—it’s whether investors will position themselves to capture that growth through strategic investments in purpose-built accommodation that meets 21st-century student expectations.

The time to act is now, while supply constraints persist and before the market fully recognizes the exceptional returns available in Florence’s transforming student accommodation sector.

Source: La Repubblica Florence