STUDENT HOUSING DEVELOPMENT
The growth of the student housing sector over the last several years, scan be seen as a smart investment for student housing developers. This creates a challenge to developers, who must find ways to stand out to ensure strong leasing for new apartments.
Student housing development has shifted strongly toward high-density apartments closer to campus. In this environment, assemblages and ground leases are more common, leading to an increase in costs to student housing developers, with pre-development costs reaching $1-2 million before reaching the shovel-ready stage. Given this trend, it’s critically important to get it right early in the process. Thorough early-phase market assessment is critical to student housing development planning and design, supporting optimized occupancy, rental rates and net operating income (NOI) growth once the project has completed development.
Phase 1: Feasibility And Market Assessment
A feasibility and market assessment should be your first step in planning a new student housing development. Such a study will help you gain an understanding of the student population and the competition, including both current and projected growth in campus enrollment and housing supply.
Getting to know the local student market is critical. The broad student data that is accessible from most universities that publish student demographics specific to their campus. Yet this data varies in depth and applicability to the student housing development context and often fails to offer enough market-specific data to adequately guide unit mix and amenity planning. Primary research with students at your target university or college is typically required to complement the available secondary data.
While primary research can vary, in-person intercept surveys and focus group formats are recommended to best identify trends, illuminate student housing needs and preferences and gauge students’ interest in your project. Research questions should be designed to highlight market-specific student demographics and psychographics, including:
Financial capacity of students and guarantors.
• Feeder schools.
• Degree programs.
• Balance of undergrad vs. graduate students.
• Importance of athletics, Greek life to further define the student demographic.
If you are unsure of how to effectively facilitate research, consider working with a research partner or consultant with student housing experience to help design and execute your study.
Additionally, your pre-build feasibility assessment should include a competitive analysis addressing the current housing supply and the prospects for future supply over a two- to three-year outlook. While analysis of current supply is fairly straightforward, your team should also consider the pipeline of possible new student properties both on- and off-campus, including details regarding planned unit mix. On-campus housing outlook can be derived from college or university strategic plans for on-campus housing, including a view toward renovations, new supply and student housing rule changes. This information can be sourced from University Planning documents generally available to the public.
Off-campus development plans are identified through discussions with local planning officials, interviews with local property managers and student housing experts. Along with student demographic and psychographic data, these market insights provide a well-rounded view of student housing project feasibility and will guide unit mix and amenity plans, which will strongly impact the ongoing occupancy and rental rates for the property.
Phase 2: Unit Mix And Amenity Planning
The right amenity packages and unit mix will increase initial leasing velocity, renewal rates and resale value. A successful unit mix should respond to the student demographic as articulated through Phase 1 research, and:
• Capitalize on underrepresented floor plans (i.e., private vs. two or three bedroom units) — both current and planned — within the market.
• Offer varying price points that can appeal to a broad range of students, from those seeking a high-end living experience to the price-conscious.
• Respond to market-specific layout needs, such as extra bike storage, sporting equipment space or large walk-in closets.
Market specifics should be your guide in planning; private and four-bedroom units may be low demand in one market but desirable in others. While pools and fitness rooms are common amenities, insights gained directly from your student population should inform the need and potential usage of other amenities. For example, a club room may be an attractive feature on-paper during lease-up but may end up under-utilized throughout the year if the university offers adequate, accessible space for group meetings, for example. Unused amenities become wasted space that costs additional money to re-purpose a few years after opening.
Phase 3: Operating Pro Forma
The operating pro forma — used to estimate the ongoing operating expenses of the project — is a crucial piece of the development plan, necessary to ensuring return on investment. Budgets created without the benefit of operational experience or historical data often include inaccurate assumptions that can affect the performance of the investment beyond the build. An operating budget should include detailed line items for revenue assumptions, payroll, maintenance, administrative expenses, marketing and turn. Ideally, operating budgets should also consider development and delivery of residence life programming, which helps to connect the property to the university and supports the success of residents as students and beyond. Failure to create a realistic operating pro forma often requires developers to reduce expenses in a manner that negatively impacts the student living experience — and thus the renewal and occupancy rates in year two — or requires costly, last-minute marketing efforts to drive increased leasing during the initial lease-up phase.
If you lack context for creating an operating pro forma, consider working with a consultant with student housing operations experience who can provide guidance based on historicals with comparable properties.
The supply and demand fundamentals for student housing should continue to trend favorably in most markets as enrollments outpace new product deliveries. With thorough due diligence informing the planning stages of your new student housing development, you will be well-positioned to differentiate your property and return optimal revenue in year one and beyond.