Student Housing: a Look at the Market
The most recent decade in the United States have seen an upswing in student housing investments, attributed often to the large influx of the 18-24 year old demographic. While Investors have seized opportunities, many universities in the United States overinvested in staff and facilities. In terms of transaction volume, the market is peaking and purchases of existing student housing came in at $9.8 billion in 2016; student construction rose to $5.1 billion the same year. This volume is followed with significant growth.
In the last economic cycle, cap rates for student housing moved to high points of close to 8% – investment in the sector was viewed as a riskier asset class than general apartments and the higher cap rates captured risk. Back then this market was only a $1-2 billion market. Market liquidity have risen as the cap rates declined again in recent years. Aside from regular market behavior, economists believe that as the sector grew with professional investors and dollar volume, cap rates shrank to reflect improved information access; new metrics and references existed for the understanding of asset performance. Leading investors in this space tend to be cross-border investors including Brookfield, GIC and Mapletree.
So, at what costs are students utilizing housing? Analysis by the NMHC revealed a bed in the average off-campus purpose-built floor plan costs students $10,965 per student per year, compared to $7,717 per bed for on campus residence halls, $7,056 for on-campus apartment floor plans and $13,093 for off-campus student-competitive floor plans. On average, a student paid 26 percent less for an on-campus apartment similar to an off-campus purpose-built unit.