Fall 2016 Student Housing Newsletter

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Market Reporting that Matters

Fall 2016 Student Housing Newsletter

Student Housing Market Ends 2016 Leasing Season in Strong Position

Tuesday, September 20, 2016

At the beginning of the Fall 2016 leasing season, many anticipated another strong year for the sector. And now that the fall semester is under way at most universities, we continue to see strong results relative to a few years ago.

Leasing velocity at privately owned student housing properties has averaged at or above the 2015 level, and annual effective rent growth has improved nationally.

More than 44,000 beds have been delivered for the current fall semester and 3,800 more are anticipated to deliver in the next few months. This is slightly above the levels seen in 2015, but moderate compared to 2013 and 2014. Of the 92 universities that have received (or will see) new supply in 2016, only 30 of them added beds in 2015.

Looking into next fall, supply is expected to be at a similar level or slightly above, with 45,700 beds identified. Though this number is preliminary, it takes into account 1,800 beds delayed from 2016 and 9,200 beds still in the planning stages.

Of the 92 universities with new beds delivered in 2016, some 32% are expecting additional new beds in 2017.
Texas A&M University remains among the top universities for new off-campus deliveries (as it has every year this cycle), with 1,850 beds delivered in 2016 and more than 2,300 expected in 2017. The University of Florida will remain in the top 20 for new deliveries for the third straight year, while the University of South Carolina and Baylor University will remain among the top for the second year in a row.
After ranking among the top for 2015 and 2016, Louisiana State University, University of Maryland, University of Illinois-Urbana-Champaign and University of Louisville will see little to no new supply relative to recent years.

Leasing Velocity Slowing but Strong; Rents Up

Leasing velocity was reported ahead of years past through most of the season. It tracked ahead of the last two years through April, but began to tighten in May, then fell slightly below the 2015 rate. If we look at three-year, same-store properties, prelease is down 103 basis points (bps) from August 2015, but up 70 bps from August 2014.

These results are, in part, driven by properties pushing rents more than before and select markets softening because of an abundance of new supply. These are, however, still strong figures for the sector.

As mentioned above, leasing velocity is slowing year-over-year, but properties are pushing rents. Nationally, effective rent levels averaged $618 per bed for Fall 2016, up 2.3% from Fall 2015. Most properties are averaging between 2% and 4%.

Traditionally, properties located closer to campus achieve higher rents and lease faster. While this remains the case, properties located between a half-mile and one mile from campus are achieving higher rent growth. This is because the newer and more expensive properties are located closer to campus.

Properties located less than a half-mile from campus are averaging $672 per bed, which is up 2.3% from last fall. Those located between a half-mile and one mile are averaging $553 per bed, up 3.1% from last fall. And properties located more than a mile from campus are averaging $536 per bed, up 1.7%.


Top Universities for 2016 Deliveries

The table below shows how the universities with the most new 2016 supply have performed. The impact varies by university. Most of these universities recorded positive effective rent growth and a slowdown in leasing velocity.

Virginia Tech had the strongest annual effective rent growth and one of highest prelease percentages among these universities. Not only did annual effective rent growth top 7%, but prelease averaged 100%.

The University of South Florida continued to see strong results, with annual effective rent growth averaging 5.1%, though leasing velocity was down slightly year-over-year at 97.3%, compared to 98.5% the year before. This performance is a result of moderate enrollment growth (2.1% or 733 new students per year, from 2001-2015) and some pent-up demand with more than 40,000 students, so new properties are still being absorbed and existing properties are still achieving strong results.

Louisiana State University and the University of Louisville both have seen the effects of the new supply delivered in recent years. LSU’s effective rent levels and leasing velocity were down from Fall 2015. Annual effective rent growth averaged -3.6% and prelease averaged 86.1%, which is more than 800 bps from August 2015. Louisville’s effective rent levels dropped by 5.4%, but leasing velocity increased year-over-year, averaging 82.9%, up nearly 1,000 bps from last year.

Both of these universities will see some improvement in the next few years as new supply levels slow compared to recent years.

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