Student-Housing-Market Outlook

By Kevin White, Director of Student Housing Acquisitions, Virtus Real Estate Capital: New capital sources have taken notice of the opportunity in student housing to put significant capital to work at an attractive risk/reward tradeoff.
Kevin White Picture

As an asset class, student housing is attractive for investors based on historical performance, current industry fundamentals and comparative value to other asset classes.

New capital sources have taken notice of the opportunity in student housing to put significant capital to work at an attractive risk/reward tradeoff as evidenced by Starwood Capital’s recent acquisition and other capital provider’s activity in the industry.

With construction costs increasing, the often talked about threat of new supply is seemingly declining in many markets. For new investors looking to make their first investments in student housing, they need to partner with an experienced management company and have an informed view on supply and demand (current and forward looking) in markets they are considering.

It may sound basic, but it’s necessary for investors to go deeper than just studying historical trends or betting on the fact that a market has achieved certain occupancies or rents in the past. Not every deal is a good value-add candidate.  And some deals will always trail the market because of their location or unit mix.

Student Housing Trends 

The importance of product differentiation continues to grow in the student housing industry.  Whether it’s a property’s irreplaceable location, value proposition or cottage style construction, properties that have a unique selling point continue to outperform their competitors.

The buyer pool for student housing has continued to grow deeper each year.  More liquidity in the market helps sustain the industry as a viable property type going forward.

Both public and private buyers are chasing deals, which has made for a lot of satisfied sellers. Historically, low interest rates and increased competition has pushed cap rates to levels never seen before in the industry.

The Outlook for 2015 

Overall, the outlook for student housing in 2015 is positive for the industry as a whole, although some individual markets will struggle.  We are seeing development slow down, which will help many markets absorb the new supply that has already been delivered.

The slowdown in development will also enable existing properties to push rate, which will be needed to absorb any future upward pressure on cap rates when interest rates inevitably increase.

We’re excited about the immediate opportunity in student housing and bullish on the long-term performance of the property type.