More Demand, Less Supply for Student Housing in 2015

More Demand, Less Supply for Student Housing in 2015

The student housing business faced declining college enrollment in 2014. At the same time, developers finished more purpose-built student housing properties than ever before. But these new student housing communities leased up very quickly anyway.

“We saw strong occupancies in 2014 … even though there were more than 60,000 beds delivered,” says Taylor Gunn, a student housing research analyst for Axiometrics.

This year looks even better for the student housing business. Pre-leasing is going very well for the newest, highly-amenitized student housing developments. Enrollment is also expected to increase, especially at the largest colleges, and fewer new beds are hitting the market compared to the last two years.

Students sign leases for the fall semester

The new student housing properties that will open this fall have already pre-leased an average 44 percent of their student housing beds. This year’s student housing beds are leasing faster than in any previous year since 1995, according to Axiometrics.

“There is a demand for purpose-built student housing,” says Brian, Veith, assistant director of student housing for the National Multifamily Housing Council.

New student housing is in demand, even though it’s much more expensive than the existing student housing stock. The national average effective rent for this fall's new beds is $779. That’s up from $701 in 2014 for the new beds that opened in that year—a huge increase of more than 10 percent, according to Axiometrics.

New student housing properties rent for so much more largely because they are often very different than the existing housing stock in their markets. The new properties of 2015 are also much more expensive than the existing, stabilized inventory of student housing. The $779 average effective rent of the new 2015 properties is $173 more than the overall national average of $606, according to Axiometrics.

“The amenities are a huge part of it,” says Gunn. “For now, students are responding really well to this higher-priced, highly-amenitized product.”

College is enrollment up for major universities

The largest schools continued to increase their enrollment of students in 2014—and those large universities are the places where student housing developers are building new properties. “The big universities are growing, but they are growing modestly,” says Jim Arbury, NMHC’s vice president for student housing. “Our members are typically owning and investing in properties in these larger markets.”

Enrollment is slightly softer overall in 2014, falling to 0.3 percent to reach 20.4 million students in attending degree-granting educational institutions throughout the United States. The news is better for 2015, with a slight increase in overall enrollment forecast by Axiometrics.

“Students are going to continue to go to college, regardless of what else is going on in the economy,” says NMHC’s Veith.

Occupancy rates high and rising

Student housing properties are generally well-occupied—and they are getting fuller. Existing off-campus student housing properties were 95.8 percent occupied in January 2015. That’s up 180 basis points from the average occupancy rate of 94 percent in January 2014. It’s especially impressive considering all of the new student housing properties that opened since the beginning of 2014.

Less new development

Developers won’t finish as much student housing this year as they did in 2013 and 2014. Builders plan to finish properties with room for 48,000 new student housing beds this year, with nearly all of that housing opening over the summer, in time for new students to move in for the fall semester, according to Axiometrics. The new construction for 2014 is 23 percent less than the nearly 63,000 beds added to the student housing market for fall 2014 and the nearly 60,000 beds added for 2013.

“Construction costs have gone up,” says Arbury, explaining the decline in new construction. Also land to build one is growing hard to find.

But 2015 will still be a huge year for new construction: 48,000 new student housing beds is still higher than the student housing sector did in any of the years of the last real estate boom, peaking at about 45,000 in 2008. Axiometrics counts 73 universities receiving new student housing this fall. Of those, only 15 will get more than 900 beds. Also, about 30 percent of the schools getting new beds this year haven’t received any new supply in the past four years.

 

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