Student housing has become much more than a sub-sector of commercial real estate’s multifamily asset category. These properties are now extremely sought-after and financially formidable in a class of their own.

And student housing properties are now worth more than ever, according to a recent Real Capital Analytics (RCA) report.

The price per bed of a student housing complex now averages just more than $90,000, says the research firm. Meanwhile, the CAGR (compounded annual growth rate) of the sector increased 10 percent from the first quarter of 2014 to this year’s first quarter. And during that time frame, capitalization rates for student housing assets are 16 basis points below traditional multifamily outside of the six largest U.S. metros.

RCA asks: “Are these prices and growth rates sustainable?”

RCA seems to think not, and that this major pricing upswing might be winding down. RCA argues that prior to 2014, student housing was led by small owners, and only 30 percent of the buyers in the space were REITs, foreign purchasers, and investment managers. But as of early 2018, those big institutions had accounted for more than half of all buyers. That proportion has surely gone up since.

So, if you were looking to buy into a property type that’s a well-kept secret and then quickly flip it for a high return, the word is already out.

However, the current owners and developers of student housing are enjoying strong operational returns, especially on those properties close to campus, says a RealPage report.

While overall student housing rent growth for the fall of 2019 is up 1.8 percent year over year, besting 2018’s 1.6 percent, there is more upside the closer a property is to campus. In May, student housing less than a half-mile away from campus posted a 2.1-percent rent gain. Those assets more than a mile away from campus only rose one percent. Assets in between gained 1.7 percent.

The same is true for occupancy rates: in May, properties within a half mile of campus were 78.2 percent leased, while those further away were at 72.8 percent.

Investors developing new student housing complexes have taken notice. Of the 424,000 beds delivered during the current economic cycle, a majority are close to campus. The average distance to campus for new student housing facilities is currently 0.31 miles, down from 0.73 in 2011.

On the horizon, most of the 47,000 beds delivered this year and 48,000 in 2020 will likely be close to schools – with built-in buyer demand.

About GRS Group

GRS Group is a leading provider of commercial real estate (“CRE”) services worldwide. With offices across the United States, Europe, and affiliates around the globe, GRS Group provides local market knowledge with a global perspective for institutional real estate investors, occupiers and lenders worldwide. The GRS Group team has evaluated and advised on over $1 trillion in CRE transactions.

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