Student Housing

Cooling But Still Kicking

By Erica Rascón on Dec 5, 2016 in News

Student housing is still a hot sector for investors. Data research specialists at Axiometrics report that many properties experienced rent growth between 2 – 4 percent this year compared to fall 2015. But the writing on the wall suggests that investors may want to proceed with greater caution.

The market already has a few cool spots. Community colleges have recorded a decline in enrollment in the past several years. Subsequently, the need for housing near these schools has also decreased. The National Center for Education Statistics’ most recent analysis reports that in 2014, community colleges received 3.65 percent fewer enrollments than in 2015. (This year’s figures are pending.)

Since the zenith of enrollments in 2009, enrollment in for-profit schools has dropped by 26 percent. The decline in enrollment could be a trend, a result of several economic factors. But it could also foreshadow more closures and limited demand for student housing.

Several campuses have not survived the recent changes. ITT Technical Institute shuttered 13- campuses this year. In the summer, Burlington College in Vermont announced that it will soon close its doors. Corinthian Colleges declared bankruptcy in 2015, leaving more than 77,000 students in limbo. Le Cordon Bleu culinary institute has closed 16 of its campuses and The Art Institute is in the process of shutting down 18 campuses across the US.

Not all colleges seem to suffer equally. Community colleges, especially those in suburban and rural setting, offer greater stability. Developers are finding the low land cost needed to reap significant yields per unit.

According to data released by Axiometrics, more than 4,400 student housing beds entered the market since 2011.  The National Center for Education Statistics reports that the number of school-aged students (traditionally 25-35) will increase by 20 percent by 2022. The enrollment of more mature students is expected to rise by 23 percent. These figures suggest room for student housing growth, however inconsistent.

Though the market still has a rapid pulse, investors are wise to keep their expectations moderate in coming years. A study by Real Capital Analytics (RCA) reveals that investor cap rates are only 21 basis points higher than the average cap rate for market rate apartment properties.  That’s down from a 46 basis point advantage in 2013.