Student housing’s strong fundamentals have inspired a wave of new supply that continues the modernization, and growing sophistication, of both on- and off-campus housing.
And it underscores just how far the sector has come.
“The most important tease of any real estate business is what is going to be the demand for your product,” says Randy Churchey, president and CEO at Memphis, Tenn.-based EdR Collegiate Housing. “And fortunately, for student housing, the demand side of the equation has been fairly stable for the last couple of years. When you have that nice stable increasing demand, it makes for a very good investment.”
Over the next few years, university enrollment is expected to increase about 1 percent per year. And forecasts show that new supply will be around 50,000 beds in 2014, although the demand is about 65,000, setting up a stable playing field.
“[It also] brings into fruition much of the pipeline that was planned prior to and during the economic downturn in 2008-2010 when we saw a slowing of new supply,” says Bill Bayless, president and CEO at Dallas-based American Campus Communities.
But what happens after that, when the starts commenced in the last three years come to fruition? Many industry stakeholders are concerned that student housing’s newfound sterling reputation will work against its fundamentals.
“Student housing today is one of the darlings of the multifamily industry,” says Brent Little, president at Dallas-based student housing developer Fountain Residential Partners. The company just broke ground on three new developments, adding 1,400 beds to serve the University of Texas–San Antonio, the University of Houston main campus, and the University of Minnesota–Twin Cities.
“Right now there is significant amount of capital and equity flowing into the sector,” Little says. “I think today our greatest risk is overbuilding.”
The poster child for this right now, he says, is the Texas A&M market. There have been thousands of beds delivered in the last several years, with 85 percent occupancy and another 7,000 beds under construction.
While it varies from market to market, in general, the new supply pipeline is weighted more heavily toward the luxury Class A end.
“Some specific markets may have short-term absorption and stabilization issues for new supply,” Bayless says, “especially in markets where too many developers are targeting the upper socio-economic students within the overall student body.”
Georgia Southern, University of Arkansas, and universities in both Tallahassee and Texas are already overheating, industry watchers say. And although these markets all boast large schools, those universities aren’t growing fast enough to absorb all the product coming around the bend.