Student housing market continues to grow in US
Trends are showing that there continues to be significant growth in the student housing sector in the US, with increasing demand for housing with amenities and a need to replace aging facilities. The student housing market is a growth industry with a multitude of room for expansion as currently only 20% of the housing demand for colleges is met by the schools themselves. Despite the recent years’ activities of developing new projects and replacing old dilapidated ones, only a fraction of the market’s demand for adequate accommodation has been met.
In 2016 there was a rise of 2.3% in the price per bed for accommodation in the student market, which stands at an average of $618 for this end of year. Proximity to the campus is a major parameter which effects pricing, as well as security, furnished apartments, social events and other amenities, such as free WIFI. The average cost per bed per year for a location up to half a mile from the campus reached $672. In comparison for housing over a mile and a half from the campus the average cost per bed is $537. For the latter there was a rental price rise of 1.7% since the previous year. The statistics also show that already 83.4% of the available housing had been rented ahead of time in June for the following year’s 1st semester.
According to Bill Bayless, President of the American Campus Communities, taking Austin, Texas as an example of a city with abundant new projects, the occupancy rates are well over 90 percent with only 40% of the newly enrolled students enjoying relatively new housing solutions. Therefore the vast majority of students are left to acquire accommodation in conventional apartments.
Saban Real Estate, a subsidiary of Capital Group Inc. embarked on a massive endeavor this last November adding 19 student housing projects to its portfolio for $508 million. The move entailed a strategic partnership between Saban Real Estate with Campus Advantage, and it has led to Saban’s rise as one of the largest US holders of off-campus student properties for rent. The aim behind the move is to create a greater amount of purposeful student housing projects at a lower rental cost.
The Real Estate Investment Trusts (REITS) that focus on real estate for the student housing sector are providing their investors with regular income streams and long-term appreciation of the properties. American Campus Communities is one example of a public company which has grown since 2004 from 16 to 163 properties, with an average growth of 3.4% per year and a 97.7% occupancy rate. The company also has a 4.5% market share in its target markets. These numbers convey the boom which we are witnessing in this profitable market. Despite the growth of online tuition options, there is growing demand for even more housing as college enrollment in brick and mortar institutions rises year by year. Student housing is also considered to be a recession-resistant long term investment as a larger amount of people will attend colleges or study for additional years in the state of a bad economy. The market also remained semi-resilient during the 2007/8 financial crisis with rental prices not dipping too heavily.
College enrollment in the US will reach 19.8 million students by the year 2025 according to the National Center for Education. These statistics represent a total increase of 14% from 2014 enrollment figures. Rising rents and increased demand, which are driven by a strong economy, demographics and growth in higher education enrollment, have led to a large amount of investors entering the lucrative school housing sector. The current perception is that when diversifying your portfolio within the multifamily rental properties segment, there is every reason to hedge your investment in this booming domain.