July 13, 2017

A Primer on Student Housing

July 14, 2017 | by Beth Glavosek | Blue Vault

Did you know that student housing is a robust and still-developing sector of real estate?

Some real estate operators are acquiring older student housing developments and modernizing them, while others are building brand-new housing that meets the expectations of today’s students.

Here’s a quick look at this sector and its opportunities.

Who invests in student housing?

According to a New York Times article from earlier this year, private developers, REITs and private equity firms make up the majority of student housing investors. It is still considered a relatively new asset class. Institutional investors find its growth prospects, steady revenue stream from rents, and comparatively high capitalization rates appealing.[1]

Why it’s in demand

Experts in the sector believe that a combination of higher college enrollment and tight supply have driven a need to develop and invest in more housing. According to CoStar, cash-strapped public universities are unable to fund new dormitory development due to state budget cuts. In addition, many Millennials plan to pursue post-graduate schooling, which extends the demand for student housing for a longer period of time beyond the undergraduate years.[2]

Not your parents’ (or your) dorm room

It’s probably no surprise that today’s students have higher expectations for comfort and convenience than previous generations. While those of a certain age might remember cramped accommodations without air conditioning and in sore need of repairs or updating, thankfully, students today have things a bit better. According to National Real Estate Investor, certain features are becoming the norm: substantial study space, recreational spaces, and places where students can meet and talk. Some student properties even offer fitness centers, game rooms, lounges, outdoor spaces, and sports simulators.[3]

In summary, the student housing sector appears to be healthy and is benefiting from high occupancy rates and high demand.

[1] Vivian Marino, “A Rush to Meet Rising Demand, and Expectations, for Student Housing,” The New York Times, February 28, 2017.

[2] Randyl Drummer, “Institutional Investors Coming Around to Student Housing, Sector Seen as Recession-Resistant Alternative to Apts.,” CoStar, March 30, 2017.

[3] Diana Bell, “What to Expect from Student Housing in 2017,” National Real Estate Investor, January 4, 2017.