- August 16, 2016
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There has never been a better time to invest in student rental housing in Ontario. The market is booming in many centres in this province, resulting in big transactions and new construction.
And yet, challenges exist for student housing developers that don’t exist for developers of other rental accommodations. For those developers who might be leery of the market, there are many reasons why you should overcome your fears and get investing. And there are ways you can meet the challenges and prosper
There are currently over 800,000 students enrolled in colleges and universities across Canada. This number is expected to grow over the next ten years, so that over a million students will be enrolling at the beginning of September 2021. Where will these students live? Not only will an additional 200,000 students be looking for accommodations, these students will be staying in school longer as they pursue more years of education.
Demand is already strong for quality student accommodations in most cities and towns with universities across Ontario and it’s only going to get stronger. These factors will lead to lower vacancies and higher average rents and a high rate of return on investments.
Student Housing’s Special Concerns
Student housing is a specialized market, and developers should be aware of the special characteristics of that market before they invest. It goes without saying that student housing cannot exist without a college or university to provide tenants, but few realize that no other form of real estate is as sensitive to location as student housing is. Students, many of whom are moving into their own accommodations for the first time in their lives, need to be close to their schools, and will pay a lot more for a property that has a good location.
Renting to students also means renting on a short-term basis with more tenants than conventional rental apartments. Although Ontario universities are expanding their summer term offerings, the industry is still geared heavily towards September 1st, and the summer term is a challenging time to keep apartments occupied.
Further, students and their parents also want a quality product that’s well managed. Fewer students these days are willing to accept overcrowded houses in student ghettos, and neither are the non-student residents in the neighbouring properties, nor the city councils they elect.
Purpose-built student housing which offers updated amenities like fully-equipped fitness centres, access to movie theatres, game rooms, study rooms, et cetera, are already renting for a considerable premium over other stock. These buildings should also be designed for high tenant density, with multiple bedrooms, fully equipped kitchens, and other amenities one would typically find in a mid-range condominium building, including flat screen TVs and double beds.
Developers building one or two-bedroom apartments for students do not have an understanding of the market they’re building into. Students are looking for privacy and community, which means well-designed four-bedroom, two-bathroom units should be the norm. Be sure that the bedroom doors lock.
Higher Costs, Higher Rates of Return
Although student housing has been stigmatized in the past for being of poor quality unable to stand up to the rigours students put on it (and this is still a factor when it comes to insuring your student properties), student housing is a more management intensive investment, than conventional rental housing. More people will occupy a student apartment’s rooms over the course of the year in student housing. Parents will visit, friends will come over, and many will stay overnight as they cram for exams at the end of term. This will lead to increased wear and tear on the building that management has to be prepared for.
However, most students these days have significant disposable income. Not only do many students have jobs, they often have parents and two sets of grandparents willing to help them take this first step on adult life. They are willing to pay for the amenities the landlords provide. A well-designed product can get you more dollars per square foot than a conventional apartment, easily offsetting the costs of additional amenities and security. Simply said, today’s students have more money. They drink Heinekin.
The Best Places to Build
Developers building student housing will find their best returns in cities with institutions where the majority of students are from out of town, such as Queen’s University in Kingston or the University of Waterloo. Schools like George Brown College in Toronto have students that commute to class. So although George Brown is still a good place to invest, be aware that the percentage of the student population which needs housing is lower than schools elsewhere.
When considering which institutions to invest near, look at the existing student housing demand, and consider the school’s future enrollment projections, and whether competition will be opening up nearby. The provincial government recently announced a plan to establish new undergraduate campuses in cities without a university presence, such as Barrie. Oshawa has already seen the launch of a new downtown campus of the University of Ontario Institute of Technology. Such initiatives will spark a new market for student housing in those areas.
Developers also need to be aware of the various barriers to entry that might exist in certain towns with universities or colleges. Some cities, like Waterloo, have embraced student housing and encouraged its growth through favourable bylaws and an expedited development process. Other towns are still struggling with the question of student housing, causing tension between students and local residents.
A Growing Market
But the market is encouraged and encouraging in more places than it’s not. The growth of the student population over the next decade, the increasing affluence of said students, and their willingness to pay for the best quality stock on offer all translates into excellent returns for those willing to take the leap into the student housing market.