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The Highs and Lows of Student Housing Rent Growth

Strongest Markets Not Necessarily Largest

By | Thursday, August 11, 2016

While student housing annual effective rent growth has increased nationally since last year, performance is still quite volatile among individual university markets.

Some places, such as Kent State University and the University of Nevada – Reno, have recorded rent growth far above the national rate of 2.3%, while students at other schools, such as the University of Delaware and Michigan State University, are paying less rent for a bed than they did last year.

The universities with the 10 highest and 10 lowest student housing rent-growth rates for Fall 2016 are:

The strongest university markets are not necessarily those with the most new supply, nor necessarily the largest universities. While the following schools might not have Power 5 athletic programs or the most degree offerings, their student housing is showing the strongest performance for owners and investors.

Kent State University

Kent State University had the highest annual effective rent growth for Fall 2016 based on same-store purpose-built properties. The average Kent State rent was $653 per bed, up 11.6% from last fall.

Properties have been pushing rents, and with little purpose-built supply in the market, leasing velocity has remained strong at 97% (based on June 2016 data). This is a 187-basis-point (bps) decline from June of 2015, but that decrease was driven by underpeformance of one property that is farther from campus than others and offers a different utility package.

Fewer than 300 new beds have been identified for 2016 delivery, after none came to market in 2015.

University of Nevada – Reno

Off-campus properties at the University of Nevada – Reno had the second-highest rent growth for Fall 2016 at 10.2%, based on the current average rent of $558 per bed.

On the other hand, the market’s prelease rate was 250 bps lower than last year’s as of June, again because of one underperforming property located across from a new development. However, the market’s prelease rate overall is trending above the national level.

Northern Arizona University

Northern Arizona University’s 7.1% Fall 2016 effective rent growth was the nation’s third highest, and the school’s leasing velocity was among the nation’s highest.

The average rent at privately owned properties near NAU was $718, some $100 more than the national average.

Additionally, properties are 100% leased for the second year in a row.

The university has seen strong enrollment over the past 10 years, averaging 1,025 new students per year (4.5% growth), and on-campus housing has averaged above capacity the past three years. This has helped drive strong results for the off-campus properties.


Virginia Tech University

The 7.0% Fall 2016 rent growth at Virginia Tech University was No. 4 nationally and, like Northern Arizona, the school’s off-campus housing is fully preleased for the coming semester.

Rents at properties near Virginia Tech averaged $603 per bed, and the 100% prelease rate means no concessions needed to be offered.

Enrollment has increased moderately over the past 10 years, averaging 1.6% growth per year since Fall 2006. However, the increase of more than 1,400 students in 2015 contributed to the strong performance at purpose-built properties in the area.

On the other end of the spectrum are university markets that aren’t performing so well, especially compared to the previous year.

Minnesota State University – Mankato

Leasing velocity at Minnesota State University’s Mankato campus declined 480 bps from June 2015 to 88.4% in June 2016. Add this to the -5% effective rent growth, and the effects of four years of flat-to-declining enrollment can be seen.

The rent-growth decline can also be attributed to the concessions offered by some properties to encourage leasing.

This university hasn’t seen new off-campus supply delivered since 2004.

University of Louisville

The University of Louisville also ranked one of the lowest in terms of annual effective rent growth, at -5.6%, based on the average Fall 2016 rent of $610. These properties are offering gift cards and/or rent concessions, which is helping boost leasing velocity.

In fact, Louisville’s 75.7% prelease rate as of June 2016 represents an increase of more than 600 bps from one year earlier.

A total of 2,068 off-campus beds were delivered to the market in the past 2 years, with 917 more expected this year. This amount of supply, coupled with flat to negative enrollment growth in 2014 and 2015, has played a role in student housing properties’ performance.

Michigan State University

Michigan State University’s -6.4% annual effective rent growth for Fall 2016 ranked second to last nationwide. The average rent was $575 per bed.

In addition, the 87% leasing velocity in June 2016 was down more than 1,200 bps from June 2015, when just a smattering of beds were not preleased.

New supply has been delivered each year since 2013, totaling 1,560 beds from 2013-2016, with 2,900 additional beds planned for 2017 delivery. The amount of new supply is having an impact on existing properties in the market.

University of Delaware

At -9.7%, the University of Delaware had the lowest Fall 2016 annual effective rent growth in the nation, with the average rent falling to $747 per bed.

The June 2016 prelease rate of 89.1% was down one percentage point from June 2015, but is still above the national average of 83.4%.

Some 440 beds are expected to deliver this fall, with 531 more beds anticipated for Fall 2017.

The university’s enrollment growth since 2007 has been positive, which has attracted new development. It’s the older assets in the market that are struggling to keep up.


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