The student housing sector had a great start to the school year this fall. Rents kept rising and very few beds were left empty on the first day of classes. However, for many student housing operators, strong demand has become just business as usual.
“It’s in line with we were expecting,” says Ryan Dennison, senior vice president of capital markets and investor relations for American Campus Communities (ACC), a student housing REIT.
Student housing properties continue to do well even though developers have completed many new projects over the last few years and plan to build more. Enrollment continues to grow, helping to fill beds at new properties, particularly when they are located near to campus.
“Proximity to campus continued to help drive stronger performance,” says Taylor Gunn, director of student housing for research firm Axiometrics, a RealPage company based in Richardson, Texas.
Rents are still growing
At the student housing properties managed by ACC, same-property revenue increased 3.6 percent over the 12 months that ended in the third quarter. That’s a strong result for the REIT. “Our average is 3.4 percent,” says Dennison. ACC’s portfolio of properties is largely located near to universities, which helps explain some of its strong performance.
For student housing properties overall, rents also grew, but not as quickly. “Rent growth remained compressed,” says Gunn. Rent growth at student housing properties nationwide averaged just 1.4 percent over the 12 months that ended in August 2018.
At properties closest to campus, rents grew by 1.7 percent on average over the last year. Properties located more than a mile from the campuses that they serve had the biggest decline in leasing velocity, the biggest compression in rent growth and the lowest overall pre-leasing levels, according to Gunn.
Competition from new projects has led to a slowdown in rent growth. Developers have been very busy, building close to 50,000 new student housing beds every year since 2015. They are expected to do the same in 2019, completing just a few thousand fewer beds than this year.
Students housing beds were 93.9 percent occupied for the start of the 2018 school year. That’s close to the record for high occupancy rates set in August 2017 at 94.1 percent.
“Leasing velocity was trending below last year, but caught up late in the season,” according to Axiometrics.
Student housing has room to expand
Despite all the new construction, the student housing sector still has a lot of room to grow, says Dennison. The vast majority of college students still live in dormitories or in rental houses near campus that were not designed to house students.
In the 68 markets where ACC has properties, only 23 percent of students live in purpose-built student housing and 22 percent live in on-campus dormitories. Most students—55 percent—live in more informal housing like single-family rentals.
“Many of them want to live in purpose-built student housing like ACC’s properties, but it hasn’t been built yet,” says Dennison. In the few markets where the housing stock exits, students seem to have embraced purpose-built student housing. For example, in Austin, Texas, 45 percent of students choose to live in purpose-built student housing. “It’s one of the most mature student housing markets in the U.S … and one of our strongest markets,” says Dennison.
Enrollment keeps growing at four-year public universities
More students are expected to enroll in four-year public universities. “We’re projecting enrollment to be flat this year and begin to pick up going into 2019, peaking in 2020 and 2021,” says Gunn.
Economics and demographics are bringing more students to these schools, as new job growth slows and the number of new high school graduates in states like Texas, California, Florida and Colorado increases.
Enrollment continues to grow by more than 200,000 a year at public four-year universities in the United States. These schools will continue to add well over 100,000 new students a year to their enrollment through 2023, according to a forecast by Axiometrics.