Student Housing Stats
Demographic and economic trends point to continued growth in this niche sector.
was a time when student housing either meant living in an on-campus dormitory
or an apartment in town. On-campus housing was often austere, and off-campus
housing was likely to be a poorly maintained apartment shared with several
In both cases,
attitudes about student housing were pretty much the same: Students didn’t care
that much about where they lived, they weren’t going to take very good care of
their quarters, and the whole student housing experience was just a temporary
parents who went to college 30 years ago may now be surprised to find modern
off-campus student housing that offers everything from tanning salons to spas,
retail shops, and 24-hour fitness centers. Each project seems to add a new
amenity to attract student tenants. In addition to indoor TV lounges, students
now look for pools and barbecue areas for outdoor socializing. Simple Wi-Fi
access isn’t enough — there needs to be lightning-fast Wi-Fi in the units and
throughout the property. And while students want the opportunity to gather and
socialize, they also want some privacy — their own bedrooms and bathrooms.
housing discussed in this article is privately owned, off-campus, and
purpose-built. The typical unit configuration is a suite with common space for
living and cooking and private bedrooms, each with dedicated bathroom. Most
properties offer furnished units that rent by the bed with parental guarantees.
Utilities are included and leases are typically for 12 months.
student housing developers are delivering three- and four-bedroom suites to
maximize returns. For many universities privately owned student housing
resolves the need to have competitive housing without utilizing the school’s
scarce financial resources.
of affordability, student housing generally offers accommodations at prices
comparable to alternative housing — dormitories and conventional apartments.
Cushman & Wakefield Valuation Services generated a rent comparison of a
typical two-bedroom unit at a student housing property versus a conventional
development in a similar area. The average student property offers a better
package in a roommate environment.
across the broader U.S. rental market, it is useful to compare data from Reis for
conventional apartment rents with data from American Campus Communities, the
largest student housing real estate investment trust, as a proxy for the
national student housing market. As the U.S. Rental Comparison chart shows,
only a conventional three-bedroom unit is more affordable than three individual
bedroom leases on average. However, the difference does not take into account
utilities and parental guarantees for the rent on the entire unit.
to campus is key, not only for students but also for investors who have learned
through experience that properties close to campus are more resilient when the
market adjusts. Close-in properties fare better when demand drops due to
enrollment or housing policy changes, or when new development adds to a market’s
eco-friendly features and construction are important to students and investors
alike. Many investors perceive green features to lower the future risk of
non-compliance with more stringent environmental codes expected in the coming
years. Developers have responded by building housing that meets Leadership in
Energy and Environmental Design, or LEED, standards.
universities, private student housing meets a well-defined need. For example,
the University of Minnesota is one of the top 10 largest U.S. universities and
the only one in a major metropolitan area. It has 51,853 students on the
Minneapolis campus. On-campus housing can accommodate 6,946, while commuters
account for another 10,360. Private off-campus housing provides for 6,890
students, and the remaining 27,657 find arrangements in the conventional
Minneapolis, developers responding to the 100 percent occupancy of class A
student housing will deliver 2,267 beds by the beginning of the 2014-15 academic
year. Based on pre-leasing as of June 2014, the additional inventory will be
markets, as conventional apartment and student rents converge, the value of
student housing becomes more compelling — for both students and investors.
Comparing the quality of the alternatives, student housing offers increased
safety, superior amenities, faster Internet, and greater proximity to campus.
For investors it offers a way to diversify portfolios.
conventional multifamily rental properties are among the preferred property
types for institutional investors, especially given its resiliency during
economic downturns. Multifamily consistently records superior risk-adjusted
returns compared to the other property types. Although still a small subset of
the multifamily market, student housing has attracted increased interest from
investors find attractive in student housing are the returns relative to
conventional apartments. Occupancy runs higher — ACC had 96.5 percent occupancy
in 2013 vs. 95.6 percent occupancy reported by Reis for apartments overall.
Even with increased investor capital pursuing
student housing, there is still a capitalization rate premium. Over the last 12
months ending with first quarter, student housing had the highest cap rate
among garden and mid/high-rise product, posting an average of 6.8 percent,
compared with 6.4 percent for garden and 5.0 percent for mid/high rise product,
according to Real Capital Analytics’ first quarter 2014 nationwide survey. The
gap between student and garden properties would be wider except that the cap
rate for garden product includes a significant number of older properties that
raises the average.
student housing transaction activity has ranged from $2.5 billion in 2011 to
almost $4 billion in 2012, when ACC acquired a portfolio of properties from
Kayne Anderson for $863 million. In the 12 months ending at in 1Q14,
transaction volume was $2.9 billion. This is 3 percent of the $92.5 billion of
apartments that traded in the conventional apartment market.
high prices supported by low interest rates and bolstered by an increasing
amount of capital earmarked for student housing, owners can be expected to
continue to take advantage of the seller’s market. Looking forward, transaction
volume should remain high. With the recovery in their stock prices, student
housing real estate investment trusts will likely be more active in the second
half of 2014 after pulling back at the end of 2013 and into 2014.
prices of two of the largest student housing REITs, ACC and Campus Crest, have
substantially recovered, and, as of early July, were within 80 percent and 91
percent of their respective highs. ACC reported revenue growth from $361
million to $367 million for fiscal 2013 as a result of 1.7 percent rent growth,
as occupancy took a tenth of a percent dip. By comparison, conventional
apartments had 3 percent rent growth, according to Reis, which most likely
includes higher rents for newly developed properties as well as same store rent
2010 to 2014, 40 states had 634 sales transactions according to RCA. The top 20
states represent 84.1 percent of the volume. Not surprisingly, the three most
populous states — Texas, Florida, and California — also recorded the most
sales. Missing from the group is New York, the fourth most populous state,
which is 13th on the list and recorded only 17 sales.
there are plenty of universities in New York, student housing there is very
different from the Sunbelt — there is more university owned housing and fewer sales
of privately owned properties. More than half the state’s population resides in
New York City, which is also home to more than a half-million college students
every year, drawn by the city’s more than 100 institutions of higher learning.
Universities in New York City generally lack defined campuses except for
Columbia University. Dormitories, academic buildings, and student facilities
are dispersed in neighborhoods around the city. With an excellent subway and
bus system, university students can easily live quite a distance but only a
short commute from school. For example, although there is no university in
Brooklyn Heights, the former Hotel St. George, located above the Clark Street
IRT station, is a popular residence for more than 1,400 students attending New
York University, Pace University, and The New York Conservatory for the
1970s, Columbia University was able to house barely 50 percent of its students.
At the time, a significant number were commuters or found conventional housing
in the neighborhoods around campus. In that era, the surrounding area had not
been gentrified, and students faced real risk of becoming crime victims. Today,
the area surrounding Columbia is the second safest neighborhood in Manhattan,
and the school is able to offer all students housing, a real necessity as
conventional rents have skyrocketed.
1980 to 2012, the number of university-enrolled students grew from 12.1 million
to 21.5 million, according to the National Center for Educational Statistics
data. NCES projects the student population will reach 23 million by 2020.
of factors come into play in determining the size of the U.S. student
population and, therefore, the demand for student housing. Taken together, the
net effect of factors determining student housing demand are forecast to yield
continued growth in the number of students attending universities.
population between the ages of 18 and 24 is projected to continue rising
through 2050. Of the total, a variable number will attend universities and
colleges. The overall economy with its jobless recovery has driven those who
can afford higher education to pursue further studies to defer entering the job
market and, at the same time, improve their marketability. But the lack of real
income growth for the vast majority of Americans has had a negative impact on
attendance given the increased cost of higher education and tight family
students are another often-cited factor in the number of students attending
U.S. universities. The total number of student visas granted in 2013 was
564,137. When compared to the 21.5 million university students enrolled in
2012, foreign students represent 2.6 percent of the population. While the U.S.
is the preferred country for overseas students seeking education in developed
countries, many of those students end up in Western Europe as a fallback, with
the U.K. and Germany being the primary beneficiaries of this demand.
demographics, the economy, and projected growth in the number of university
students, demand for student housing is estimated to grow. As with conventional
apartments, the future performance of the student housing industry will very
much depend on the supply/demand balance in each submarket.
Moger is the executive director of Multifamily Advisory Group in Florida for
Cushman & Wakefield and also leads student housing assignments nationwide.
Contact him at firstname.lastname@example.org.