Economy Watch: Demand for Student Housing Stays Strong

Source: TH Real Estate THINK US: Student housing report

The outlook is good for the U.S. student housing sector, according to a report released on Wednesday by TH Real Estate. Last year, the sector attracted considerable interest: investment sales totaled about $9 billion. Looking ahead, favorable demographic trends still underpin demand for the property type. Millennials (born between 1981 and 1997) are pursuing college and post-graduate degrees in record numbers, creating a sizable demand.

Also, the company reports that further opportunity for investment exists due to state budget cuts. Higher education is facing funding cuts in many states, with per student spending on higher education for 2015 remaining below that of 2008 in 47 states. That presents an opportunity for investors to provide on-campus housing stock that universities are unable to provide for themselves.

According to the report, the sector is also less economically sensitive than the conventional apartment sector, which is driven largely by employment growth. By contrast, the student housing market doesn’t experience a demand surge during boom times. In fact, post-secondary enrollment often declines a bit during economic recoveries, as prospective students pursue employment opportunities.

The sector isn’t without its risk, however, including students not paying their rent or damaging property, and the rising cost of tuition deterring students from attending university. Even so, TH Real Estate finds that the first problems tend to be mitigated by parents or guardians co-signing leases and providing damage deposits. Also, college costs are still rising, but typically at a modest rate, especially for in-state students.