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Student Housing Development Begins to Slow Down

Student Housing Development Begins to Slow Down

Student housing properties are filling quicker than ever, despite increasing competition from new development.

“Leasing velocity is still pacing ahead of previous years,” says Taylor Gunn, student housing analytics lead for data firm Axiometrics.

Student housing developers are planning to open projects containing thousands of new beds this fall, but those new beds are renting quickly in most markets, with only a few exceptions. The shortage of good sites to build on and the difficultly of finding construction financing have prevented developers from getting too far ahead of the need for new student housing beds.

Pre-leasing already ahead

Students are already signing leases for beds at student housing communities for the school year that will start this fall: 30 percent of those beds had pre-leased as of December, according to the latest data from Axiometrics. That’s an improvement over the level set in December 2015 and several percentage points higher than the December pre-leasing levels in 2014 and 2013.

“Supply has a ways to go to catch up with the demand needed to accommodate all the students in need of housing,” says Scott Streiff, executive vice president with real estate services firm JLL. “Demand for student housing continues to be robust across the country due to the increasing population demographics of the first-year student.”

Developers are on track to deliver 47,000 new student housing beds this fall, up from 47,000 beds delivered in 2016, according to Axiometrics. That’s not quite as much as the 60,000 beds-per-year pace set earlier in this cycle, but it’s still much higher than during any period before the recovery.

Other data firms show a slight decline in new construction in 2017, but not a dramatic one.

“Overall development levels have been healthy,” says Barbara Byrne Denham, an economist with research firm Reis Inc. “But the aggregate sum of new completions is expected to decline a bit in 2017.”

The limited number of development sites is preventing builders from flooding the market. “The challenge will be finding and securing attractive and buildable sites that have high walk scores and are within or close to campus borders,” says JLL’s Streiff.

Some developers are forming partnerships with universities that help them gain access to prime sites. They also keep finding other strategies to invest “Where sites may be getting limited, we’re seeing some value-add and renovation projects and projects being built just slightly further from campus,” says Taylor.

Developers are also finding ways to make projects work when the only sites they can find are far away from campus. “The cottage-style product is a different product type seen more frequently, which requires more land, so it is built further from campus,” says Taylor.

Construction loans are hard to find

But developers also have to work harder to find construction financing to build new student housing.

“New construction financing will be tougher to secure in 2017, especially if you are a developer that needs leverage and an extremely low interest rate to make your deal work,” says Streiff. “Banks are pulling back and being much more selective on what and where they lend.”

Construction costs are also rising, putting more pressure on new projects. “We saw a rise in construction costs last year, and it is something developers are watching closely as these costs can fluctuate throughout the planning process,” says Streiff. 

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