Top developers are scrambling to build or renovate student housing properties that include the new top amenity students want.
“What’s different for us in 2019 is the inclusion of more dedicated study areas,” says J.J. Smith, president of CA Student Living, based in Chicago. “Study-oriented spaces are trending up while party and game lounges are trending down.”
After years of building exorbitant features like massive swimming pools with cabana service and elaborate party spaces, developers are focusing more on providing places where students study and work in groups, in addition to fitness and wellness spaces.
Others top features include proximity to campus—students continue to be very interested in living within walking distance of the school they attend … though they will live farther away if the price is right. Students also are interested in housing designed to use less energy and water, according to leading developers.
Students Favor Spaces for Studying
The new top amenities at student housing properties are study spaces where students can gather to get work done.
“The pendulum has swung back to furthering student academic endeavors—study rooms, conference rooms, study lounges—rather than a sort of “arms race” surrounding leisure and entertainment on the property,” says James Jago, managing director of PEBB Capital, based in Boca Raton, Fla.
The new focus on study spaces doesn’t have to add to the total amenity space at a student housing property. “We are generally allocating a little less square footage to our amenity areas than we did a few years ago,” says J. Wesley Rogers, president and CEO of Landmark Properties, based in Athens, Ga. “We’re dedicating a higher percentage of these amenity areas to study space and fitness.”
For example, CA Ventures is building a full suite of social and wellness amenities at its Rise on Chauncey development near Purdue University. Residents will have access to a research room with conference seating and a study bar, a cyber lounge with free printing and scanning, and private study rooms. “We’ve found that these more practical offerings are as important, if not more important, than the amenities that might wow a prospective resident during an initial tour,” says Smith.
Students also continue to prefer to live close to campus. “There has certainly been a movement toward pedestrian development immediately proximate to campus and main entertainment corridors,” says PEBB’s Jago.
“For these denser infill projects, we’re having to be more thoughtful about space, resulting in tighter units and less elaborate amenity spaces,” adds Landmark’s Rogers.
Investors should be careful, however, when they place a high value on a property site that appears to be right next to campus on a map. “Properties immediately adjacent to a university may not necessarily be very close to its classrooms,” says Fred Pierce, president and CEO of Pierce Education Properties, based in San Diego. “We find the driving metric for location to be a 15-minute commute to class whether by walking, biking, or shuttle service.”
Students Go the Distance for Lower Rents
Many students also are willing to live farther away from campus, often at older student housing communities, if they are rewarded with lower rents.
At the majority of new buildings rising near campus, the beds rent at high prices of $1,000 a month or more, experts say. The high cost of building a steel or concrete building makes it very difficult to charge less. “It is very difficult to build walkable mid- and high-rise projects at anything other than the top of the market,” says Rogers.
The rental cost is much more affordable farther away from campus, especially at older properties constructed in the first wave of purpose-built student housing, between 2000 and 2010. Beds at older properties managed by Pierce Education Properties rent at the $500 a month range, on average, according to Pierce.
However, rents are growing quickly at both types of properties because of the strong demand for student housing.
“I can think of a couple of markets where we’ve seen annual infill rents pushed 3% to 4% from a $1,000 to $1,200 per bedroom range,” says Rogers. “We can raise rents at our cottage communities by roughly the same dollar amount, and, given the significantly lower denominator, our effective rent growth can be pretty compelling.”
Some lenders also prefer to provide financing to older, more affordable student housing properties, often farther away from campus. “We’re focused more on the middle market,” says Rich Martinez, vice president of multifamily production and sales for Freddie Mac. “We’re generally looking to older assets that are more affordable or in need of a refresh to be maintained.”
Students Value Sustainable Design
Young people also prefer to live in student housing designed to be good for the environment—though they may not be willing to pay extra for it. Operating savings and financing programs can help developers make up the difference.
“We certainly try to incorporate sustainable design features where we can,” says Rogers. “That said, it’s not always economical, and this varies dramatically by market.”
Student housing communities with sustainable design features are “viewed very favorably” by students—especially if the property has earned a certification for energy efficiency, says Pierce. But students may not be willing to pay more to live in a green building. “We are not seeing the sustainability preference translate into higher rent than less sustainable competitors,” says Pierce.
Student housing properties benefit instead by saving money. “If you can build in energy-efficient lighting systems, water-conserving fixtures, or efficient heating and cooling systems, that helps reduce your operating costs,” says Craig Wack, real estate associate for Greystar, based in Memphis, Tenn.
Many developers also are rewarded to go green with offers of favorable financing. Government-sponsored enterprise lenders offer interest rates as much as 20 basis points lower than usual to properties that earn a green certification or are renovated to use significantly less energy or water. “With green lending programs at Freddie Mac and Fannie Mae, sustainability can translate into lower cost of debt,” says Pierce.
“We do a lot of student deals that are green—where sponsors are making energy and water efficiency improvements,” adds Freddie Mac’s Martinez. “That’s usually driven by economics, and part of the equation is whether the building becomes more attractive to potential residents by being green.”
CA Student Living will open two new properties with LEED certifications in 2019: Rise on Chauncey in West Lafayette, Ind., and Link Evanston near Northwestern University in Evanston, Ill. “We are developing more LEED-certified buildings focused on energy efficiency, water conservation, and rooftop solar generation,” says Smith.
