Why is the Market so Hot?

The private “off campus” student housing market has been a growing market throughout the U.S. recently. After the great recession in 2008, many people decided to further their education and either stay in school longer or return to school from the workplace. As a result of this and the lower tuition and convenient ability for students to transfer from them to four-year universities, two-year community colleges and technical schools have seen a boom that may be peaking now.

The increases in student population has created an increasing demand for housing at all types of higher education institutions – two-year, four-year, and technical. Reasons for the increase in housing needs are diverse and include an increase in overall student attendance, students’ desire to have a “normal college experience,” more students choosing to attend smaller colleges with appropriate courses of study that may be more than 30-60 minutes from home, and students deciding to attend the same institution as their group of friends.

The need to replace aging dorms at many colleges and universities across the country that were built in the 60’s and 70’s is also a major contributor to the growth of new student housing facilities. Not only are there many old facilities that have outlived their useful life, they no longer meet modern student needs. The previously popular layout that included hallways of dorm rooms with a centralized bathroom does not give the students the choices in living style available in the private market. Some schools want the flexibility in occupying floors or partial floors and keeping male / female separation. In contrast, apartment and suite-style unit designs give them that flexibility to occupy as close to 100% as possible.

Public-Private Partnerships

Many institutions are using the private market to replace or build new housing since many taxing jurisdictions have no borrowing capacity given their financial status. This allows the “public-private partnership” concept to accomplish a school’s housing goals and reduce their costs by having outside entities provide, maintain, and operate the housing component.

At Tri-North, we have been involved in both new construction and conversions of existing housing in the past 6 – 7 years. As one example, we converted a 1965 private suite-style dorm to 260 apartment-style beds in a variety of configurations – mostly studio, one- and two-bedroom units, and a few three-bedroom units. The renovation was constructed in three phases over the course of a year and half. It resulted in a 95% occupancy rate after the first two phases, with the remaining 17 units achieving occupancy after the following semester. The lender attained 104% of the value they desired with a combination of reasonable construction costs and high occupancy that met the market.

Market-Driven Design for Success

What we have found is that thoroughly studying the specific demands of any given market is of utmost importance to the success of student housing projects. In the case of the aforementioned project sample, in addition to a stellar location (within one block of a Division 1 university), the main market trigger that contributed to this project’s success was that the design of the facility included all private bedrooms, which continues to be a market trend. The majority of the units in this example were configured as studios and one-bedroom units with small but, full-feature kitchens and in-unit laundry facilities. By far, in-unit laundry was the most-desired feature in this market. The apartments with in-unit washer-dryers sold out within a week in all three phases. The building also features highly demanded amenities like a fitness center, large and small study spaces, free coffee in the lobby, a large TV with gaming, and PC and printer stations.

The industry is strongly trending toward smaller units and rooms, with socialization space migrating to the common areas. Our colleagues at the 2016 National Apartment Association Student Housing Conference in Chicago, IL verified this trend. Today’s students place high importance on large, common gathering spaces for study, social activities, and entertainment along with private rooms that are separate from these larger spaces.

Our experience over the last 30 years shows that larger units with common space included in them promote more in-unit parties, which unfortunately often results in damage and undesirable/unsafe activities. For those same reasons, we also avoid balconies in student living. In addition, for projects in northern climates, those balconies are not used for more than 3-4 weeks out of every school year; therefore, the cost benefit ratio is simply not there. We’ve applied these market-driven trends to new developments—the latest being a 120-bed, three-story facility that is privately owned on the campus of the University of Wisconsin-Fond du Lac, which will be opening in the fall of 2017.

Market Forecast

For the coming years, we do see a slight decline in the Division 1 school market that has been built to capacity or, in some areas, significantly overbuilt. The University of Wisconsin-Madison is a prime example of an overbuilt market where newer properties are at 75-90% occupancy, rather than the targeted rate of 90-96%. Where we see persistent growth is in two-year school locations, many of which have never had housing associated with the school at all.

Our research indicates that the students who can drive 20 to 45 minutes to classes find it inconvenient during days when there might be 2-4 hours between classes with no private space to study, eat, and relax. There is also a draw for students who live outside of the commuter range but within 4-5 hours of a particular school that may provide them a better option for their course of study. Two-year campuses typically cost almost half of the tuition of the four-year university; therefore, even with additional housing costs, they provide a more reasonable avenue for the “full college experience” that continues to be a desire for today’s students. There is also a growing market of international students who plan to attend two-year institutions before transferring to four-year universities.

We believe that the impact of offering students opportunities to decrease their costs in the first two years of their education will continue to promote market sector growth for the near future.

Want to Learn More?

Contact Steve Harms at sharms@tri-north.com or 608.271.8717 for more information on student housing market trends and Tri-North’s projects.