2016 Looks Bright for Student Housing

2016 Looks Bright for Student Housing

This year looks good for the student housing business, but next year may be even better, according to the latest research from data firm Axiometrics Inc., based in Dallas.

So far, developers are preparing to create a few less new student housing beds for 2016 than they will finish this year. Meanwhile, more students are expected to enroll in 2016, creating a healthy balance between supply and demand that should continue to support the strong rent growth and rising occupancy rates that developers are enjoying now as they pre-lease student housing beds for the start of the school year this fall.

“Construction starts are actually a little behind where they were last year at this time,” says Taylor Gunn, research analyst for student housing for Axiometrics.

Developers have announced plans to create 38,000 new student housing beds for fall 2016—and other those they have only started to build a little more than 4,000. That number is likely to grow as more new builders announce new development projects and break ground, however the count is slightly behind the number of new beds that had been announced for fall 2015 at this time last year. With that in mind, experts expect developers to eventually complete fewer new beds in 2016 than the 50,100 new beds opening for the fall this year.

“We are expecting a total deliveries of a little under 50,000 new beds in 2016,” says Gunn. That fits the over pattern of new construction of student housing, which tends for come in waves, so that a big year for student housing construction is followed by a few years with less development, as the industry observes how the new units are absorbed and makes plans for the next wave of construction. The 50,100 new beds created for 2015 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.

Demands is likely to be strong for these new student housing apartments. “Enrollment continue to grow, especially at big state schools,” says Jim Arbury, vice president for student housing for the National Multifamily Housing Council.

Enrollment is also rising again at universities overall—not just the top-tier schools that have grown over the last few years. “For fall 2016, on a national scale, we are forecasting an increase of over 200,000 new students,” says Gunn.

Developers are also taking longer to develop properties because sites are more difficult to find. “We are also seeing people build smaller projects in smaller universities,” says Gunn. A few developers are venturing to building housing for students are smaller universities, with less than 10,000 students, although it takes time to building the necessarily relationships with the school officials and the broader community.

Strong start to 2015

So far, 2015 seems likely to be a pretty good year. Occupancy rates are already strong, averaging a healthy 95 percent in April 2015. That up 140 basis points, on a same store basis, from the average occupancy rate the year before.

So far, the market seems to be absorbing the close to 50,100 new student housing beds that developers will add to the market for the fall semester. As of April, student housing properties had already pre-leased an average of 67 percent of their beds for the fall 2015 semester. On a same-store basis, that’s 250 basis points higher than the pre-leasing rate at the same time in 2014. Rents are also growing quickly, at an average rate of about 2.1 percent, also on a same store basis, with half these properties experiencing rent growth of 2 percent or greater.

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