Developers and brokers report that there are more investors than ever in the student housing market, as universities across the nation are projecting increased enrollment.
“From an investment standpoint, there haven’t been as many players as there are now,” said Curtis Palmer, managing director for Transwestern Multi Housing Capital Advisors. “Many are looking at student housing as a real investment vehicle.”
But new evidence is showing that in some cases “schools have not grown as predicted due to budgetary constraints,” said Kimberly Byrum, senior vice president of market research for student housing developer JPI.
Last year, the National Multi Housing Council (NMHC) examined enrollment trends, existing on-campus housing stock and each school’s own prediction of its need for future on-campus housing.
NMHC and its latest report, “Student Housing 103: A Survey of 184 University Housing Departments,” concluded the following:
- Student enrollment is projected to jump 8.4%, an increase of 212,000 students, by 2010;
- Most of the schools with projected enrollment growth of 15% or more are in states with warmer climates — particularly Florida, Texas, Georgia, California and Arkansas;
- The vast majority of the schools surveyed are building more housing or have plans to add additional on-campus bed capacity in the future; and
- In 2004, nearly 30% of the U.S. population had a college degree, according to Mark Obrinsky, vice president of research and chief economist for NMHC. The college-age population (18- to 24-year-olds) is expected to swell to nearly 31 million people by 2012.
JPI develops student housing primarily in areas it considers high growth, such as California, Florida and Texas. Schools in Florida average a high 3% to 4% growth rate, while California is steadily maintaining a 3% growth rate, said Byrum.
But Texas’ student population growth has slowed to 1% to 2%, she said. “Texas A&M University won’t grow much more,” she said. In the Midwest, growth has stalled at no more than 1%, she added.
NMHC also noted that several universities it surveyed expected decreased enrollment, including the University of Colorado, Baylor University (Texas), University of Texas, and the University of California at Berkeley.
What students want
Byrum does several things to determine where to place apartments and when is the right time to build. She interviews property managers and surveys students at her primary competitors’ properties. She also uses third parties to survey students online.
“I ask who they are, what they like, such as location and amenities, and how much they would like to pay,” she said.
“Our research is driven by what the university has planned for on-campus housing,” said Alex Quintana, senior vice president at Transwestern. “We do our own research, but we buy what we think is good data, like from M/PF YieldStar.”
According to JPI’s research findings, most prospective tenants are undergraduate freshmen, sophomores and juniors. They make up 75% to 85% of the tenant mix, said Byrum.
She also said that these students are price sensitive, and they require proximity to campus and campus buslines.
JPI offers many amenities that attract students, Byrum said, such as balconies, in-unit washers and dryers, free DVD rentals, fitness centers, individual leases and proximity to retail.
Quintana also said that students want wireless Internet, dependable Internet connections like T-1 lines, and conference and common rooms for academic and social activities like online gaming competitions.
There are also many things Byrum learned students don’t want. “It’s loud and clear that they don’t want to share bedrooms. They don’t like being close to Greek houses. They also don’t necessarily like having retail on the ground floor.”
Byrum said that most students could only afford to pay rents up to $600 a month. A good rule of thumb is that rents for new units can be 10% to 20% more than what older student housing properties are asking, said Quintana.
Some developers have also started building (or increased construction of) graduate housing, said Quintana. “That’s a market that’s been ignored.”
The biggest difference with graduate students is that they don’t like roommate situations. They live alone or with a spouse and want to be right on campus, he said.