Student Housing Coming of Age
A Student Housing Flood?
Statistics show growing student enrollment and continued demand for student housing, which has attracted more student housing developers to the mix. Is there a danger of flooding the market with too much inventory, if not in the short-term then in the long-term? That depends on whom you ask. The big-picture answer, of course, is that it’s a market-by-market issue and so far most student housing developers have been rewarded by their efforts with solid occupancy rates. But there are growing pains.
Campus Evolution’s Stark, though, is a little concerned that there may be too much inventory flooding the market—at least in as many as a dozen markets over the past three years. Seeing opportunity, institutional capital has rushed to larger markets, creating excessive supply that will take time to absorb. Beyond those few markets, his research shows most universities can only house about 25% of their student bodies.
“That is where the privatized off-campus providers can work in unison with universities,” Stark says. “Most recognize that the private sector plays a key role and is more efficient. Thereby it frees university capital up for more important academia uses. In looking at new development, enrollment growth and in-place housing must be carefully balanced. We see strong growth in the sector for years to come, if strategic and thoughtful, in the pursuit of opportunities.”
About 60,000 beds were delivered over the past year, which is a lot in comparison to just two years ago, says David Nelson, senior vice president of development at Atlanta-based real estate investment, development and advisory firm Carter. But he agrees with Stark—overbuilding is a market-specific question. He says, “We are developing a project in Boise, ID in which the past seven years have brought no deliveries of off-campus housing, versus other universities that have had multiple projects delivered in the past several years.”
Ted Rollins, CEO of Campus Crest Communities, a Charlotte, NC-based student housing developer-operator, has a different perspective on the overbuilding question. He sees the real story in this industry as the transition from older product, which is mostly non-purpose built, to purpose-built student housing “Our research indicates that there is a meaningful backlog of demand for the purpose-built product and that given the choice, the student will choose this type of living experience,” he says. “So, we have a high degree of confidence that any oversupply is limited to some local markets and is not broadly an issue.”
Rollins touched on one piece of the student housing opportunity puzzle. But developers see opportunity across the board—and in many markets.
“The student housing sector has performed better, on an operational basis, than multifamily over the five-year period,” Bobilin says. “During the last downturn, student housing wasn’t immune to the effects but withstood the impact in greater proportion than strictly conventional product.”
Nelson sees opportunities split between tier-one universities that have nominal growth but are providing higher-end, walkable communities that haven’t previously existed and second- and third-tier schools that are posting growth. Carter’s Tetro Student Housing Village near the University of Texas at San Antonio is a good example.
“Over a 10-year period, the school grew about 40% and added close to 9,000 students,” Nelson says. “In years prior, the school was commuter-driven, but during this growth, you saw the university reinvest in itself by providing on-campus housing, new academic facilities and a new fitness center. In addition, you saw a city growing around it. Student recruitment into jobs within the major metro area is also picking up, helping to make the university an attractive location for students.”
Campus Crest sees opportunity in what Rollins calls the “right blend” of markets across the US and Canada. The firm invests two-thirds of its money in markets featuring public higher-education systems with schools that are not “name brand,” such as University of North Carolina Wilmington. As Rollins sees it, schools like UNC Wilmington are the backbone of public higher education in the US.
“These schools educate approximately 47% of the population that attend public universities,” Rollins says. “The average enrollment is approximately 14,000 to 15,000 undergrad students and the average tuition per year is a little less than $10,000. These schools offer the highest value in education. The other one-third of our portfolio is located in markets with flagship schools like the University of Florida. We have found a great niche in Canada in the past year as these students are looking for a better housing product and the market is underserved.”
Next: The Challenges