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Perspectives

The ongoing transformation in student housing

Are you capitalizing on this trend?

University or online education? A full-time college degree or skill-based specialization? On-campus or off-campus housing? While these debates are dominant in the media and in many households where children are preparing for higher education, the student housing sector seems to be unperturbed. On the contrary, the sector has seen a hectic pace of activity through 2016.

February 1, 2017

A blog post by Surabhi Kejriwal, Real Estate research leader, Deloitte Services LP

According to Real Capital Analytics, in Q4 2016 alone, transaction volumes increased a substantial 40 percent year over year to approximately $2.0 billion and prices rose 74 percent during the comparable period. Overall, on a rolling 12-month basis, student housing transactions grew 53 percent to $9.1 billion and prices increased 16.1 percent in Q4 2016. Surprisingly, domestic institutional and international investors accounted for 40 percent and 22 percent of the transactions, respectively, in 2016 year to date (as of December 21), which are again higher than their respective shares in 2015 (See figure 1).


Figure 1: An overview of the student housing

us-student-housing-fundamentals.jpg (1742×620)

* Data as of December 21, 2016
Source: Real Capital Analytics, January 2017; “Student Housing Market Ends 2016 Leasing Season in Strong Position,” Axiometrics LLC, September 20, 2016; Taylor Gunn, “Axiometrics on Cheddar TV: Student Housing Interest Growing,” Axiometrics LLC, December 19, 2016.


Before we delve into the details, let’s set some context around student housing. As the name suggests, the sector comprises residential accommodations that cater to college or university students. Student housing is located both on- and off-campus; if the latter, it is usually located in close proximity to the college or university. On-campus housing is usually dormitory-style while off-campus housing tends to be single- or four-bedroom units. Off-campus housing facilities are privately-owned and tend to offer more amenities, such as a kitchen, extra Internet connection, fitness center, and so forth.

So what’s driving this capital flow into student housing? I believe there are a couple of reasons:

  • First, investors are looking to diversify within the real estate asset class as they look for yield opportunities due to the strong demand for and pricing of traditional properties.1
  • Second, student enrollments have grown consistently, resulting in a steady uptick in demand for housing.2

But, will this momentum continue through 2017? I believe it should as highlighted in my earlier blog on our 2017 Commercial Real Estate Outlook.

In general, student housing demand is resilient to economic conditions, as research suggests that enrollments remain unaffected during economic downturns. And the healthy demand will likely continue as enrollments in degree colleges is expected to rise by 15.5 percent to 23.8 million by 2023 from 20.6 million in 2012, despite the increasing popularity of online education.3

Having said that, demographic changes are creating significant opportunities to redevelop and creatively use existing space—both on and off campus.

More than just a bed: Building for the ‘live, work, play’ mantra

Millennials and, more importantly, the upcoming Gen Z or iGen students (those born after 1995) have different consumption and lifestyle behaviors compared to their predecessors.4 I consider both generations, and Gen Zs in particular, digital natives, who are growing up in the hyperconnected Internet era and the smartphone world. Their accommodation needs are different and not limited to bare settings with a bed, desk, and closet in a dorm setup as they follow the ‘live, work, play’ mantra.

The lifestyle pattern of Millennials and Gen Zs have a different definition for bare necessities: continuous Internet connectivity, combined with ready access to fitness, recreational, socializing, and a variety of food options areas, are among some of their greatest needs. These age cohorts are also purpose-driven, which means that their built space should contribute to the betterment of the environment and society at large.

With the Gen Z accounting for more than 25 percent of the US population and the Millennials about 23 percent, universities and student housing owners and developers would be amiss to not consider the nuances of their behavior and consumption patterns as they plan future accommodations.5 It may be worthwhile for them to take a step back and revisit their existing strategies.

Now, universities are constantly reprioritizing their budgets amid rising costs and lower government grants.6 In addition, they generally lack in-depth expertise in managing student housing. And so the changing demographics would add to universities’ challenges as many existing accommodations would become obsolete and may need an upgrade. Perhaps, it’s not long before the quality of student housing will have a substantive influence on a university’s brand.7

In such a scenario, it may be worthwhile for universities to partner with the experts, i.e. the private student housing owners and developers. Such partnerships would be a win-win for colleges and universities and for private student housing owners and developers.

Even off-campus private players should revisit their portfolios and consider appropriate repositioning and design changes, such as smart housing, to remain attractive to the Millennials and Gen Z students. In fact, unlike current practices, private players will benefit from investing in online marketing to engage with students due to the latter’s strong affinity for online presence, interactions, and views.8

As I ponder over changing demographic trends and their impact on the student housing sector, I do believe that the sector is ripe for transformation and presents a huge opportunity for owners, developers, and institutional investors.

What do you think? Do reach out to us with your thoughts.

The lifestyle pattern
of Millennials and Gen Zs have a different definition for bare necessities: continuous Internet connectivity, combined with ready access to fitness, recreational, socializing, and a variety of food options areas, are among some of their greatest needs.

1 2017 Commercial Real Estate Outlook 2017, Deloitte Center for Financial Services.
National Center for Education Statistics, US Department of Education.
William J. Hussar and Tabitha M. Bailey, “Projection of Education Statistics to 2023, 42nd edition”, US Department of Education, Institute of Education Sciences, and National Center for Education Statistics, April 2016.
Top 10 Gen Z And i-Gen Questions Answered, The Center for Generational Kinetics
Dr. Patricia Buckley, Dr. Peter Viechnicki, Akrur Barua, “A new understanding of Millennials: Generational differences reexamined,” Deloitte University Press, October 16, 2015; US Census Bureau, Data as of 2015.
Michael Mitchell, Michael Leachman, and Kathleen Masterson, “Funding Down, Tuition Up”, Center on Budget and Policy Priorities, August 15, 2016.
Tyler Moselle, “Student Housing Trends at Universities”, BOSS magazine, May 25, 2016.
“The next generation of renters –Generation Z”; Places4Students.com, June 1, 2015.

 

QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The opinions expressed in QuickLook are those of the authors and do not necessarily reflect the views of Deloitte.

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