With shifting demographics, rising cost of education, increasing interest and sustained development activity (elevated activity in certain markets), what can be expected of student housing industry performance over the next few years?
Axiometrics, a RealPage company, recently released its annual student housing forecast for enrollment, university-owned housing, and privately owned housing. The forecast is based on 175 of the top universities across the U.S., most of which are public, four-year institutions, with average enrollment above 20,000 students. It includes expectations for 2017 through 2022.
Demand/Enrollment Growth for the Axio175 Universities
After flat enrollment growth in 2012 and 2013, the magnitude of enrollment growth picked up in 2014 and has remained relatively consistent since. Enrollment growth at these universities is expected to average 1.1% for the upcoming Fall 2017 semester, an increase of more than 56,000 students. This is somewhat down from the 1.3% average growth of 2014-2016. Growth is projected to average 1.5% annually for the remainder of the outlook period, peaking in 2020, according to the student housing research.
What will drive this growth? Despite shifting demographics, high school graduation rates continue to rise, and they are projected to remain above the long-term average during the outlook. This will help drive positive demand going forward. Additionally, moderation in the job market also will prove to be beneficial for student housing demand.
During a time of moderating demand and sustained development activity, what are the expectations for student housing performance? The latest forecast shows some slight moderation in occupancy and rent growth for privately owned student housing properties. Occupancy and rent growth are forecast to average 95.5% and 2.1%, respectively, this fall. Keep in mind, these figures include purpose-built student housing properties and student competitive properties.
These occupancy figures are still above the long-term (2000-2016) average of 94.3%, while rent growth is expected to decelerate from higher levels in recent years. The 30-basis-point (bps) decline in occupancy is driven by increased volume of new supply on- and off-campus housing for these universities and the expected demand growth for 2017. Rent growth for privately owned student housing properties is expected to fall by 40 bps relative to the 2016 rate, but remain above 2%.
One of the driving factors of this performance is the higher volume of new supply expected at the Axio175 in 2017, relative to the past two years. New off-campus housing supply has moderated from the more than 50,000 beds delivered in 2013 and 2014.
At the same time, new on-campus supply is anticipated to reach peak levels since at least 2000, with nearly 26,000 beds coming online this fall. However, new supply is expected to moderate over the next few years, student housing research indicates. University-owned supply is projected to slow slightly from nearly 26,000 beds to 21,000 beds and privately owned purpose-built supply is anticipated to decline from nearly 40,000 beds in 2017 to 29,000 in 2018.
How does that compare to demand growth? Demand has outpaced purpose-built supply more than 70% of the time, but a shift is expected for 2017. The increase in total new supply (on- and off-campus) is expected to be greater than the increase in new demand this fall. This is only expected to be the case in 2017, supply and demand are forecast to remain more balanced later in the outlook. . With that in mind, stable enrollment growth and moderation of new supply will normalize fundamentals.
Of course, each individual university market tells a different story. Many universities are projected to register stronger and slower results than last year.
Universities are renovating existing housing stock or building new on-campus housing options, demographics are slightly shifting, and supply has picked up relative to demand for this set of universities. However, stable and positive enrollment growth will keep fundamentals healthy going forward.