More New Students, More New Beds
Off-Campus Housing Keeping Pace With Enrollment
Many people in late 2013 and early 2014 had huge concerns that too many off-campus student housing properties were being developed. Well-respected business outlets and publications sounded the alarm about an overflow of new beds swamping the marketplace and spelling trouble for older properties.
At Axiometrics, our forecast called for a total of 66,211 off-campus beds to be delivered in time for the 2014-2015 school year. Between 2014 and 2016, we’re predicting an additional 107,381 beds to be delivered. This could seem to be a lot, especially in the face of moderating enrollment.
It’s not time to push yet another panic button, however. Though enrollment growth is slowing, it is still expanding at a decent pace; a pace we anticipate will continue for the next few years. As the economy improves, we anticipate that individuals will continue pursuing higher education to ready themselves for better jobs. Furthermore, the younger cohort of the millennial demographic is just starting to reach high school and college age, which also will add to enrollment growth.
More importantly, student housing statistics can differ greatly from market to market. A lot of the beds mentioned above were delivered to smaller colleges and universities, which hadn’t had new supply in several years and are now scrambling to meet pent-up demand. To obtain a complete picture of the student housing market, it’s important to examine both supply (number of beds delivered) and demand (enrollment growth).
Leading the Way in New Beds
The chart below depicts universities and colleges that are forecast to deliver the highest number of beds between 2014 and 2016. Also included is enrollment growth at these institutions.
Topping the list is University of Minnesota, which is becoming quite the mecca for private student housing developers because of strong occupancy and effective rent growth. But are developers becoming overly enthusiastic about this market? On the surface, maybe. But drilling down, we find that, in many ways, the University is playing “catch-up” from previous years. In 2013, for example, only 234 beds were delivered in the face of growing enrollment.
Speaking of enrollment, a 0.5% increase in enrollment growth might seem somewhat paltry. However, putting this into real numbers, it represents an additional 2,590 more students during the next two years.
Axiometrics relies on additional variables to determine strong university markets for off-campus student housing development, such as the size, availability and affordability of on-campus housing options as well as tuition growth, number of college-bound individuals in the region and financial aid availability. As such, just because a market is seeing an influx of new beds doesn’t mean it is experiencing a supply glut.
News from the Axio 140
The Axio 140 is a database of student housing (both on- and off-campus) at 140 universities and colleges that Axiometrics regularly tracks. One trend we’re seeing at most of the campuses is that enrollment will continue increasing, while the number of on-campus, university controlled beds will shrink.
This is important; a decrease among on-campus bed supply will mean higher rent and fewer available beds. This, in turn, will likely push students, especially upperclassmen, to seek the more available and less-expensive off-campus housing. This trend, coupled with anticipated enrollment growth, tells us that, while private, off-campus student housing developers (POSH) are adding more beds, these builders aren’t necessarily swamping the market.
The chart below shows that occupancy and effective rent growth among both university and private, off-campus student housing will begin to increase in the middle of 2015, then will peak by mid-2017 before dropping off near the end of the forecast period.
Bed deliveries, on average, will likely decrease slightly during the next couple of years. But the 66,211 being delivered this year didn’t exactly crowd the market. Furthermore, fewer beds coming online, combined with slowing, but still- growing enrollment will mean an increase in on-campus and off-campus rents and occupancy during the next few years.
By KC Sanjay, Senior Real Estate Economist, Axiometrics, Inc.
Senior Real Estate Economist KC Sanjay blends economic, capital market and demographic data with Axiometrics' proprietary data and forecasts to provide the best analysis and insight available to optimize multifamily investment, development, management or financing decisions.