Student Housing Industry Ends Leasing Season Strong, but With Moderation

The 2017-18 academic year is just a couple of weeks away, which means the current student housing industry leasing season is closing. The off-campus housing market sustained solid performance for another year: Annual effective rent growth for purpose-built student housing properties has remained healthy, and leasing velocity moderated only very slightly from last year, student housing research found.

The delivery of the 46,000 beds expected this fall has begun, though some projects’ completion will surely be delayed, some even into next year. Axiometrics has already identified 41,700 beds to be delivered for fall 2018, though almost 12,000 of them have not started construction.

Student Housing Leasing Season Data

Texas universities continue to receive the most student-accommodation development, with four schools among the top delivery markets this year. Texas Tech is No. 1, with more than 3,700 new off-campus beds coming to market, but no off-campus supply has been identified for delivery next fall.

Student Housing Enrollment and New Supply chart

Texas A&M is expecting the second-most 2017 beds, and an additional 2,400 beds have been identified for 2018 delivery. Through 2017, more than 11,000 have been developed off-campus since 2011 at A&M. While none of the other universities in the list above have quite the same volume of supply, neither have they had the same amount of enrollment growth. However, most of the universities above will receive more new supply from 2015-2018 than the total amount of demand growth expected for the same timeframe, student housing research showed.

Prelease Moderates Very Slightly

As previously reported, leasing velocity for student accommodations has outpaced the previous year(s) almost every month last year and this year. Properties began to lease earlier this year, helping properties gain leasing momentum early on.

Average Prelease by Month for Student Housing

As the leasing season progressed, leasing velocity began to tighten. In March, then again in May, leasing velocity fell below last year’s pace, but still remained ahead of 2015 levels. As of June, leasing velocity remained below last fall’s 84.4% average prelease – though only by 30-basis-points (bps). While these are still healthy figures, moderation was anticipated after several years of record pace.

Trends at properties located at various distances from campus are different from each other. Typically, off-campus beds located closest to campus have the highest leasing velocity and are able to change a premium on rent. While this remains the case, the student housing industry is seeing moderation in year-over-year leasing velocity.

Student accommodations located less than one-half mile from campus averaged 86.3% in June, down 35 bps from June 2016, though still up 52 bps from June 2015. Prelease at properties located between one-half mile and one mile is up year-over-year, though they don’t have the highest percentage leased. This is primarily because these properties aren’t competing directly with new supply and are still well-located. Properties located more than one-mile from campus are seeing the greatest moderation, with prelease down 150 basis points from June 2016 and 280 basis points from June 2015.

Student Housing Rent and Growth

Average monthly rent for properties located less than one-half mile from campus is nearly $700 per bed, a $125-$150 premium relative to properties located farther away. But because these properties compete directly with new supply (most of which is located less than one-third mile from campus), they aren’t pushing rents to the same extent as other properties, according to student housing research.

Markets to Watch

Prelease and overall performance at different properties and university markets are moderating, while many others are still showing stronger results. Several universities with the strongest performance have been among the top performers for several years. At the same time, many universities that had been weaker performers are strengthening or are no longer in the bottom spots.

Student Housing Leasing Data by University

Only 10% of the three-year same-store universities show negative rent growth and slowing leasing velocity for off-campus beds. These universities include those highlighted in pink and represent markets that are softening due to the effects of supply and/or demand. In terms of top performing, more than 30% of three-year same-store universities are seeing positive rent growth and flat or increased leasing velocity since last June.

Overall performance across the student housing industry is expected to continue moderating the remainder of the leasing season, though some universities will continue to outpace the rest of the market.