Disclaimer: This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice. Nothing contained on our site constitutes a solicitation, recommendation, endorsement, or offer by ButterflyMX or any third-party service provider. ButterflyMX is not a financial adviser. You should always seek independent legal, financial, taxation, or other advice from a licensed professional.
If you invest in real estate, you might want to take a closer look at off-campus collegiate housing for your next venture. Due to the shifts in student behavior and the way universities are being managed, investing in student housing may be lucrative this year and into the future.
Continue reading to learn more about the current state of student housing investment, new trends, benefits, and tips for investing in off-campus properties.
In this post, we’ll cover:
- The current state of student housing investment
- New trends in student housing
- 4 benefits of investing in student housing
- 5 tips for student housing investments
The current state of student housing investment
In 2020, college students were sent home and forced to attend classes online due to Covid-19.
“It seems that universities will likely be lowering (housing) capacity for a number of years from here on out and change the way they have been housing students,” J. Ryan Lang told Multi-Housing News. Lang is the vice-chairman and head of Newmark Knight Frank’s Student Housing division. Furthermore, he saw on-campus housing lower its capacity by more than 70% at universities across the country.
In 2021, many colleges started re-opening their campuses and welcoming students back to on-campus dorms and housing. But rooms that were initially meant for double, triple, and sometimes quadruple occupancy were transformed into singles to accommodate social distancing. This means that returning students had to, at large, turn to off-campus housing.
In fact, despite the pandemic, interest in investing in off-campus student housing stayed constant. According to Real Capital Analytics, investors spent $5.7 billion to buy student housing properties over the 12 months that ended in the first quarter of 2021. Of that, a whopping $4.3 billion was from the fourth quarter of 2020. The figure was just a 9% decrease from the year before.
Other considerations
A recent National Multi-Housing Council survey had surprising findings regarding the current state of student housing investment across the country.
Summary of key findings from the NMHC Student Housing income and Expense Survey:
- Campus-adjacent and high-rise properties saw higher net rental income
- Mid-Atlantic and small properties reported lower vacancy costs, despite the pandemic
- Concessions were most increased in Southeast and garden-style properties
- Operating expenses were lowest in newer properties
Overall, evidence shows that students want to live near campus. And amenity-rich student housing properties located next to campus at top-tier universities experience the most substantial demand and pre-leasing activities. These are schools with more than 20,000 full-time students and have Division I athletic programs.
New trends in student housing
Overall, we’re seeing a solid student housing sector in many university apartment markets these days.
Here are some new trends that have emerged in the student housing market:
- Increased international student enrollment
- Affordable housing with high-tech amenities
- Lower on-campus housing capacities driving off-campus demand
- Preference for housing in mixed-use buildings
- Greater focus on mental and physical well-being
Increased international student enrollment
According to New York Times data, American consulates approved 117,000 F-1 student visas for fall 2021, which is 90% of 2019 levels. And those international students were more likely to seek out off-campus housing than ever before.
With off-campus housing, students have more flexibility with their leases and the option to stay in place over extended school breaks. These are features that are even more attractive to international students than ever before.
Affordable housing with high-tech amenities
Just like traditional apartment renters, student-residents desire amenities that make their daily lives easier.
Students are notorious for being on a tight budget, so skip the bells and whistles and think of practical amenities. High-tech amenities not only simplify apartment living for students but also lower the property’s operating costs. In turn, you can charge students lower rent, which increases occupancy rates.
Tech-forward amenities include keyless access control, smart building technology, and package rooms. Today’s students do almost everything on their phones — even write entire term papers. Implementing smartphone-based entry systems will streamline property access and visitor management for your student tenants, who are often on the go.
Lower on-campus housing capacities driving off-campus demand
As mentioned beforehand, many on-campus residences have limited their occupancies. Even more, college enrollment continues to increase year after year, and colleges don’t have enough beds to accommodate all students. Both these factors increase the demand for off-campus housing.
Preference for housing in mixed-use buildings
College students are all about the luxury of convenience. They’re swamped juggling coursework, social life, and often internships or even jobs. So, they crave having all their essentials within a short distance. What’s better than having bare necessities — such as convenience and grocery stores, cafes, and laundromats — in the same building they live in?
Developing student housing within a mixed-use building is the best way to go.
Mixed-use buildings combine multi-resident housing, such as student housing, with commercial spaces. Since young people are very conscious about sustainability and climate change, they forgo having cars on or near campus. And that’s more of a reason to build a multi-use development that houses students and provides all the amenities they’d ever need. You’ll be doing your part in going green while providing student tenants with maximum convenience.
Greater focus on mental and physical well-being
Currently, Gen Z dominates the college student population. And they’re more likely to graduate high school and enroll in college than older generations did.
Furthermore, Gen Zers are the most open about their mental health than any previous generation. Stigma about using mental health services has lessened, making it easier for Gen Z to seek help when they feel they have a mental health problem that can be treated.
As such, Gen Z wants housing that fosters a safe space and promotes holistic wellness. You can achieve this by painting the walls soothing colors, placing comfortable and ergonomic furniture, and focusing on wellness-oriented community amenities.
4 benefits of investing in student housing
Student housing real estate investments offer a steady stream of benefits — and investing in student housing is becoming more and more lucrative.
Here are the top four benefits of investing in student housing:
- Constant demand: Unlike commercial properties — and even some residential accommodations — you’re nearly guaranteed that you’ll have a return on your investment in student housing. Today, demands for undergraduate and graduate degrees are at an all-time high. So, as long as people are going to college, there will be demand for student housing,
- Steady, organizational lease renewals: At prominent universities with strong bases for student organizations, such as sports teams or fraternities and sororities, it’s common that the organization itself leases the housing. This means that student clubs allocate specific percentages of their operating budgets strictly to house organization members. And although seniors indeed graduate, there’ll always be first-year and underclassmen students who fill up vacancies.
- Low maintenance/refurbishment costs: One of the many good things about having student tenants is low expectations. As long as their essentials are covered, they’ll take apartments in any condition. This means that you don’t need to budget for expensive refurbishment or home improvements or maintenance for your buy-to-let student property.
- Co-signers to guarantee rent payment: Since college students barely have credit histories, student housing properties require renters to have co-signers on their leases. Co-signers can be parents, guardians, or student club advisors. So, you’ll have a higher likelihood that rent will be paid.
5 tips for student housing developers
As a real estate investor, you should add student housing investments to your portfolio. And if you’re a property developer searching for a new project, consider a student development.
Consider these five tips for your next student housing development project:
- Invest in a package delivery system
- Ensure the building is eco-friendly
- Implement a universal design
- Consider walkability when zoning
- Enable smart living with proptech
1. Invest in a package delivery system
Whether it’s books or household supplies, students rely heavily on online shopping to get their essentials. So, the need for effective package delivery and management systems in student housing is more critical than ever before. That’s why you should invest in proptech that simplifies deliveries.
When constructing a student housing building, designate a room that property managers can set up as a package room. In addition, enabling infrastructure to facilitate property access for couriers can further streamline all kinds of deliveries.
Watch how ButterflyMX’s package room works:
2. Ensure the building is eco-friendly
Younger generations are experiencing the devastating effects of climate change first-hand. As a result, they’re more likely to be environmentally conscious than their predecessors. So, to attract student renters, you must incorporate eco-friendly elements into the building.
This means harnessing renewable energy and equipping the building with smart technology that conserves energy. For example, consider installing solar panels for the building’s primary energy source and placing motion-sensor lights to minimize electricity use. Making the building as environmentally friendly as possible will save money and attract generations of college students to come.
3. Implement a universal design
Students’ needs and wants will undoubtedly change over the years. So, you want student housing properties to have universal designs to accommodate future generations easily. As a property investor, you know that it costs money and time to reconstruct and redevelop properties.
However, buildings with universal designs are easily adaptable and can be repurposed. So, future owners can easily repurpose the building without demolishing and rebuilding the property entirely when the building reaches the end of its useful life.
4. Consider walkability when zoning
Walkability and accessibility to public transportation are essential when deciding where to build student housing. Often, students opt not to bring cars to campus — especially in cities. College students don’t want to bear the responsibility of owning and maintaining cars while in school. In fact, the number of teenagers who obtain driver’s licenses has nearly halved since 1984.
So, for college students and many city dwellers, walkability is an amenity in itself. Especially for student residents, having all their essential needs within a short walkable distance can significantly improve their quality of life.
5. Enable smart living with proptech
Today’s college students grew up with technology, and each generation after them will be even more connected to technology than their predecessors. For them, smart proptech solutions like video intercoms are an expectation, not a perk.
As you’re developing your student housing property, keep in mind future property owners and managers will want to add proptech amenities to attract these younger renters. So, include infrastructure that can easily accommodate hundreds (maybe even thousands) of IoT-powered devices, such as smart locks, automatic thermostats, and amenity space reservation systems.
