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Summer 2017 Student Housing Report

Student Housing Performance Strong, but Moderating in 2017 Leasing Season

Tuesday, July 25, 2017

 

The 2017-18 leasing season is coming to an end, and the student housing industry has sustained solid performance for another year. Annual effective rent growth for purpose-built student housing properties has remained healthy, and leasing velocity has moderated, but stood relatively close to last year’s pace.

Some 46,000 beds are expected to deliver over the next several weeks, though some beds will surely be delayed, potentially into 2018. Axiometrics has already identified 41,700 beds to be delivered for fall 2018, including nearly 12,000 beds still in the planning stages.


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The state of Texas continues to receive the most student housing development, with four universities ranking among the schools with the most new beds this fall. Texas Tech is No. 1, with more than 3,700 new off-campus beds coming to market, but no off-campus supply has currently been identified for delivery next fall.

 
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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 seen 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 time period.

Prelease Moderates Very Slightly

As previously reported, leasing velocity 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.

 
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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, properties located closest to campus have the highest leasing velocity and are able to change a premium on rent. While this remains the case, these properties are seeing moderation in year-over-year leasing velocity.

Properties 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 are 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.


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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.

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.

 
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Only 10% of the three-year same-store universities show negative rent growth and slowing leasing velocity. 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.

Top Performing

Auburn University

Auburn’s rent growth figures in previous years weren’t quite high enough to make the top-ranked universities for rent growth, despite strong performance for several consecutive years. However, annual effective rent growth has now surpassed 5%, bringing Auburn among the top four rent-growth markets this fall. Additionally, properties averaged 100% leased in June, which is more than 500 bps higher than June 2016. And, surprisingly enough, new supply has been delivered each year since 2014, with another 500 beds opening in the next few weeks. With demand expected to continue outpacing supply, Auburn is expected to remain a top-performing university.

Northern Arizona University

Northern Arizona University is another strong market, with rent growth averaging 4.7% and properties averaging 100% leased for the third straight year. Enrollment growth has remained strong, and minimal new supply has been added relative to demand. These trends are expected to continue, but possibly moderate with more than 800 beds delivering this fall and an additional 590 next fall.

University of Nevada–Reno

The University of Nevada–Reno continues to see strong performance figures, and its 8.3% annual effective rent growth is the highest in the three-year, same-store set. The university has ranked amongst the top for annual effective rent growth the past few years, and properties are still leasing at the same rate, despite the 1,400 beds delivered since 2014 and an additional 530 beds coming to market this fall.

Virginia Tech and the University of Colorado at Boulder also remain in the top spots for performance with no new off-campus supply in the pipeline and steady enrollment growth.

Bottom Performing

Texas A&M University and Texas Tech University

A&M student housing properties averaged only 80% leased in June, down from 83% last June and nearly 95% in June 2015. At Texas Tech, properties averaged 72% leased in June, down from 83% last June and 91% in June 2015. Additionally, effective rents have dropped almost 3% from fall 2016 at Texas A&M and decreased 3.6% at Texas Tech.

This is because of the volume of new supply being delivered. Both universities are expecting more than 2,000 new beds by the time classes start next month, with most of the impact being felt by the properties located closest to campus. However, both schools have seen moderate to strong enrollment growth the past two years. When development activity slows, performance in both markets should begin to improve, though it may take some time for them to fully recover.

University of Louisville and Georgia Southern University

Both universities remain in the lower-performing group of universities, but have strengthened since last fall. Properties at the University of Louisville had more than -5% rent growth last year, but haven’t had to drop rents nearly as much to maintain leasing velocity. For fall 2017, annual effective rent growth is averaging -2.6% and properties were 84% leased in June, up more than 860 bps from June 2016. This is also more than 1,400 bps ahead of June 2015 leasing figures.

Georgia Southern has remained on the under-performing university list for several years. However, this is beginning to turn around. Annual effective rent growth is barely in negative territory at -0.3%, compared to the nearly -2% rent growth of last year. Properties are also leasing at the same pace, without increasing the number of specials being offered.

Both universities can expect momentum to continue the remainder of the 2017-18 leasing season and into the 2018-19 season as well.

University of Missouri

The University of Missouri has seen a major deceleration in performance this year. Demand has shifted after enrollment declined by more than 2,000 students last fall, with 1,400 new beds coming to market this fall. Effective rent levels are averaging 2% below last year’s level. Additionally, properties averaged 71% leased in June, down more than 1800 bps from June 2016.

Enrollment growth is expected to continue declining in 2017 and 2018, but no new supply is currently identified for next fall. Still, with declining enrollment, performance will remain relatively low until demand turns positive.

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

 

 

 

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