Old-school, standard dorm-style living no longer makes the cut for today’s university students.
Millennials, by nature, are social and tech-savvy creatures, but when you add a strong focus on academics and a looming competitive job market into the mix, student housing becomes a unique and targeted sector of the multifamily industry, and one that's quickly gaining momentum. Emerging only two decades ago as a market that was lacking attention, today’s student housing has transformed into a core real estate asset that answers the very specific needs of a niche rentership through well-designed projects.
“You’re seeing a sector that’s really starting to modernize and evolve,” says William Talbot, chief investment officer/EVP at Austin, Texas–based American Campus Communities (ACC).
What Students Want
Tiny, shared bedrooms and communal bathrooms in midcentury dorm buildings are no longer desirable for students who are seeking privacy in their apartments. Indeed, most students want private rooms with in-room bathrooms and prefer suite-style apartment layouts.
“With the exception of urban markets, there are very few projects where we wouldn’t recommend individual bedrooms and bed-bath parity in the unit design,” says Bob Clark, president of Peak Campus, a student housing developer and operator based in Atlanta.
With a new focus on high-end development, managers use amenities, such as rock-climbing walls, golf simulators, and lazy rivers, to attract potential renters. However, these attention-grabbing amenities aren’t what keep students around.
“If you’re looking for high-end customers, you want high-end amenities to attract the customer,” says Miles Orth, COO at Philadelphia-based Campus Apartments. “Your imagination can run wild, but location and price are what students look for overall.”
Students want a trendy, affordable living space where they can study, socialize, and relax. Study spaces, high-speed Internet, and close proximity to campus are the fundamental amenities that make for a successful student housing complex.
“We tend to have confidence in the more fundamental amenities,” says Clark. “The broadest appeal for students is in well-appointed fitness centers, resort-style pool areas, and, more recently, an abundance of study rooms.”
Aware that there's a competitive job market awaiting them, today's students are taking their academics seriously, and demand has emerged for computer labs, study lounges, and other kinds of specialized spaces such as music labs or art studios. Still, Internet connectivity remains the critical amenity for successful student housing.
“There's nothing [millennials] do that isn’t online,” says Brent Little, president of Fountain Residential Partners, a Dallas-based firm. Students rely on an Internet connection for almost all their academic needs—taking online classes, collaborating on group projects, accessing digital editions of textbooks—and, with the introduction of modern Internet-based streaming services such as Netflix, all their entertainment needs, as well.
“You can't give students enough bandwidth,” says ACC's Talbot, who says the academic success of today’s students depends on reliable, fast Internet service. “We've seen people build the greatest student housing project, but if the Internet isn't dependable and high speed, the project will fail solely on that.
“At the end of the day, students want a good value, a good location, and an environment where they can be successful,” Talbot continues.
Leaders in Innovation
Unlike older millennial renters, students generally have an abundance of free time and flexibility within their schedules, so the group as a whole is apt to use apartment community amenities to a much greater extent than their professional counterparts. Even when doing classwork, they may be sitting out at the pool or gathered in a study lounge.
As such, the needs of this niche renter offer important cues for traditional multifamily owners.
“The one thing we always say [to other multifamily companies] is that we have your future renters,” says Talbot. “The students we’re housing now will be conventional multifamily renters in two to six years, so we always feel like we’re on the forefront of product evolution, because we’re seeing that consumer before everyone else [does].”
Fountain Residential's Little agrees that the student housing sector is on the leading edge of multifamily innovation. “Conventional developers are now looking to student housing projects for cues to the built environment that the next generation expects,” he says.
Bullish Market Outlook
Student housing pros are optimistic about the track the sector is on. With rental rate growth of almost 3% per year, national occupancy levels of above 95%, and steadily increasing university enrollment, student housing is booming.
"It will continue to respond to the needs and desires of its target market, which is the most rapidly evolving of the demographics,” says Little. “It’s more and more important than ever before to get an education and a job, so schools are growing, and, therefore, our business will continue to grow.”
Indeed, the demand for the product is hot.
“There was a misconception two years ago that student housing overall was being overbuilt,” says Talbot. But, he says, the sector was essentially ignored for decades, so the supply has been long overdue.
“The overall student housing market is at 96% occupancy with strong rental rate growth," notes Talbot. "Clearly, the stats aren't indicating that it’s a market that's overbuilt, but, rather, it's finally delivering quality product that didn't exist and is being easily absorbed.”