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Monday, February 2, 2015
New student housing a growing niche in the rental market
As exciting as the purpose-built rental apartment market is, a growing niche within this sector is surprising everyone with its revenues, rising demand, and strong return on investment. Student housing promises to be a growing industry with high rents, low vacancy rates and lots of potential for investors.
Student housing traditionally has faced a number of negative stereotypes. However, the reality of today’s student housing is far removed from the poor-quality converted housing of old. Throughout Canada, over 17,000 units of new student housing stock is shocking the marketplace in terms of its quality and the rents achieved. Developers entering the student housing market today are discovering a wealth of opportunity due to four critical factors:
1. The Demographics are Favourable
In September 2013, over 950,000 full time students enrolled at the 82 largest university campuses across Canada. This number has been rising for the past decade and is expected to pass 1,000,000 within the next couple of years. Of these million students, 55% attend universities outside of the communities they grow up in; 10% of full-time university students come from outside of Canada.
These more than half-million students are in need of places to live. Economically, these young men and women have more income than ever before, and they are backed by parents and grandparents who want their children to be housed in accommodations that are safe and conducive to their educational experience. This makes for a high demand for quality accommodations that rewards those who provide quality supply.
2. Post-Secondary Institutions Are Looking to Private Developers to House their Students
Post-secondary institutions are dealing with a double-blow of increasing student enrolment and decreasing government funding. Universities and colleges have by and large chosen to focus on building classroom and research space while leaving private companies to house their growing student populations. Developers are already finding good markets for student housing close to major universities, and post-secondary institutions are encouraging these developers to build.
This pattern is even further advanced in college and university towns across the United States, where large student developments have been built. Developers can take the burden of student housing off of universities, leaving the universities to concentrate on the students’ educational experience.
3. Student Housing Offers Higher Rents Per Square Foot
Students have more disposable income in their pockets (and their parents’ pockets) than in years past. They are also more willing to share space than conventional renters. Students want to be close to their schools, and they are looking for other amenities that complement their experience. Games rooms, study rooms, even fitness centres and movie theatres may seem costly to developers, until you realize that student housing developments rent by the bed rather than by the unit. The rate of return for a building that looks after the students’ needs far exceeds a traditional apartment building that would be overlooked in the market.
Student housing also defies the normal economic cycle. During the economic recession of 2008, when most sectors of real estate suffered, apartments in general and student housing in particular maintained occupancy rates and net operating income, and financing remained available. During recessionary times, undergraduate students tend to stay in school longer, while graduates come back to school to upgrade their skills. All of this drives demand for student housing up.
4. The Market Has Only Just Started to Develop
For developers one of the best things about the student housing market in Canada is that it is still in its early stages. Waterloo has seen a boom in student housing that has added 9,000 beds within walking distance of the universities of Waterloo and Wilfrid Laurier. Just 9,000 more privately-built beds exist around the other 80 university institutions in the country.
The student housing market in the United States is now mature. In Canada, most university and college towns are virgin territory. Developers who move now into the Canadian market will obtain a strong first-move advantage and stand a chance of becoming the de-facto student housing brand.
Entering the Market with Eyes Open
The market in Canada has ramped up rapidly over the past three years. ROCK Advisors Inc has been leading the way in consulting for and brokering student housing, and has helped sell nearly $300 million in student housing. However, it is important to invest wisely, and to do that, developers and investors need the support of industry experts and an objective, well-crafted feasibility study.
Third party consultants can objectively assess each market, identify the best target properties and recommend the best types of buildings to build, and the best amenities to include, bringing their expertise to bear. This way, investors can be assured that they are picking the best sites to build, are getting the highest net operating income, and the best return on their investment.
Student housing is a young, up-and-coming marketplace with a bright future. If you are ready to engage in the unique challenges that student housing represents, you can reap considerable rewards.
Please click here for the complete article written by Derek Lobo