Student housing properties are taking a little longer to pre-lease this year.
“There certainly are several over-built student housing markets around the country," says Frederick Pierce, president and CEO of Pierce Education Properties, an investor in, developer and manager of student housing assets based in San Diego.
In many cases, new properties close to campus are drawing students away from properties farther away. Rents are still rising overall, however, and most properties are on track to be fully occupied by the start of the new school year.
“Oversaturation is more to blame than demand in most markets, and many will rebound as development activity moderates,” says Taylor Gunn, director of student housing for Axiometrics, a RealPage company based in Richardson, Texas.
All the new student housing beds developers have planned are finally beginning to weigh on the student housing market. The percentage of student housing beds that had signed leases for the school year that began in the fall of 2018 was just 74.4 percent in May, according to Axiometrics. That’s nearly a percentage point below the pre-leasing rate at the same time the year before, when 75.1 percent of beds had pre-leased for the fall.
Properties close to campus at still leasing well, even though that’s where most of the new construction has opened in recent years. On average, properties located less than a half-mile from campus were 77.2 percent leased in May. That was up 66 basis points compared to the year before. Properties located between a half-mile and a mile from campus are leasing more slowly—the percentage pre-leased was 200 basis points lower than the year before. At properties more than a mile away from campus, the percentage of bed pre-leased was 360 basis points lower, according to Axiometrics.
But rents are still growing at most properties. Only about a quarter (26 percent) of student housing properties have cut their rents so far. “Relatively few properties are dropping rents to fill beds,” says Gunn.
Once again, the properties closest to campus are doing fine. “These properties are seeing stable rent growth, which has averaged around 1.5 percent throughout this leasing season,” says Gunn. That performance is similar to prior years.
The outlook is strong for 2019 and beyond, as developers plan to build fewer new beds. "Recent reductions of new deliveries to volumes at about half of the bullish years of 2013 and 2014 demonstrates market prudence and portents well," says Pierce.
Developers finished a total of 47,000 new off-campus student housing beds for the fall of 2018. Developers are also starting construction on 30,900 beds for the fall of 2019, with 10,000 additional beds identified but not started, according to Axiometrics.
Demand for student housing remains strong, even as the economy approaches full employment, luring some potential students away from school and into the workforce. College enrollment grew an average of 0.7 percent over the fall 2016 semester among the 175 universities tracked by Axiometrics.
"Admissions demand remains incredibly high at America’s top public universities, which translates into strong and often growing demand for students housing," says Pierce.