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In recent years student housing development has become an increasingly popular sector of the industry. Developers and investors see a reliable, growing market in the form of undergraduate or graduate college or university students looking to live in residential properties located on or near campus that cater to their unique needs. These projects tend to be high-density, and feature design or amenities appealing to students, such as dorm-style layouts, study or community areas, or retail focused on their demographic. Student housing development can offer unique benefits and challenges for your development team. You can typically rely on these properties to deliver high returns, especially for campuses where enrollment is projected to grow. On the other hand, increasing demand and the desirability of college areas can lead to steep acquisition or pre-development costs, and come with additional regulatory hurdles.
Here’s everything you need to know about student housing development and the strategies you can use to master this growing asset class:
Understanding Student Housing Development
Several qualities set student housing development apart from other multi-family or other types of residential projects. Since student housing projects are designed for university students, the buildings must be located on or near campus. Student housing developments are often mixed-use buildings, but the amenities should be specific college or university students’ needs, such as study centers with computer rooms, fitness centers designed with college athletes in mind, or retail options catering to a college-age demographic.
Unconventional leasing terms are also standard with student housing developments to accommodate college or university schedules. Short-term lease agreements that align with the college or university’s semester or quarter system can help align the property with student demand. Some properties might operate under a communal living or coliving arrangement, where residents are only responsible for the rent of their room and share other key amenities such as kitchen space or in-unit laundry machines.
Private-public partnerships between major colleges and universities and development firms, where projects are funded through a combination of endowment, private equity, or public housing initiative grants, are common as well. Developers and higher education institutions have a lot to gain by partnering on student housing. Higher education institutions rely on your understanding of the real estate market and ability to ensure the asset meets demand. In turn, you can work with higher education institutions to coordinate long-term occupancy from students, delivering a high-performing asset to investors with minimal risk.
Steps to Develop a Successful Student Housing Project
By following a few key steps, you ensure your student housing development projects are successful and deliver strong returns. Here’s everything you should consider before embarking on one of these projects:
Conduct Housing Supply Analysis Before Breaking Ground
The planning and design stages of a student housing development project should include a thorough housing supply analysis. You should research the housing market for both the area the campus is located, and also look into what on or off-campus projects the school already has slated for construction. Colleges and universities make this information available to the public in annual strategic plans or reports, and many schools have a planning department that can provide additional information. You can also reach out to local government planning departments or check public records to see what kind of student-centered housing is already in development in the region you’re looking to build in.
Consider Student Amenity Needs.
Learn how the amenities in your development project can best cater to a student audience, and if possible, consider the institution’s demographics. For example, schools with a large population of student athletes or a big recreational sports culture might mean gyms or athletic facilities could be a draw. It can also be helpful to look into what the college already offers. If the school has ample study or community space or a large athletic center, social spaces or certain amenities such as a pool may be less necessary for your building.
Consider Enrollment Data and Student Preferences
Research the colleges and universities you intend to build near or collaborate with to get a better understanding of their student demographics, including retention and enrollment rates. Projects near schools with a growing enrollment rate and a strong constituent of international students are shown to have increased demand for housing. Rural schools expect students to dorm on campus for the duration of their education, while schools in suburban or metropolitan areas often expect students to move into off-campus housing. Student housing development projects may be more viable or necessary in places where students are anticipating moving off-campus after the first year or so.
Rely on Budget Forecasting
For student housing development, it’s especially important to use budget forecasting tools to estimate the ongoing operating costs of the project and ensure return on investment. Modern real estate development software gives you the benefit of historical data to get an accurate cost-benefit analysis before breaking ground on a project. Northspyre’s platform includes DeepLook, which allows you to use data gathered from $125 billion worth of projects as well as local market data run through algorithmic intelligence, allowing you to know what projects should cost based on your location and asset class.
You can take the guesswork out of budgeting for projects in competitive industries like student housing.
Challenges in Student Housing Development
Student housing development is a growing asset class, but it’s important to understand the common challenges and obstacles you might face while pursuing these projects.
Demand for student housing has made it a more attractive investment for financial backers and developers alike, resulting in a more competitive market. You may need to ensure your properties are in desirable locations and feature unique amenities to stand out and guarantee strong leasing and returns. For teams looking to pursue private-public partnerships with higher-education institutions, an ability to leverage historical data to demonstrate a strong track record can help your firm stand out.
Zoning & Regulatory Restrictions
Local zoning regulations often limit the number of unrelated individuals who can live in a single-dwelling unit. This can pose challenges for high-density properties, especially for students who want to live with roommates or in communal living structures. Familiarize yourself with the zoning ordinances in the area you’re looking to build in and develop relationships with stakeholders in planning departments can help overcome these potential hurdles. Properties that include housing or retail space for the greater community may also help get stakeholder buy-in from community boards, who are often behind regulatory decisions on the local level.
High Acquisition and Pre-development Costs
Most colleges and universities will have demand for high-density residential projects near campuses, but these can come with higher acquisition costs for developers and require significant startup capital. Schools with growing student populations tend to be in major metropolitan areas or growing suburban communities, and the desirability of these locales also drives up acquisition costs.
Shifting Student Needs or Trends
Student housing trends are liable to shift, complicating long-term returns for your properties. For example, communal living may be having a moment, but it’s impossible to know whether or not the living format will be in-demand long-term. You can potentially offset these risks by analyzing the market and identifying what’s missing. Capitalizing on underrepresented floor plans and price points can help you stay ahead of the curve and increase demand.
A Look Into a Successful Student Housing Development Project
Partnerships between higher education institutions and developers have proven to be beneficial for both stakeholders and surrounding communities. The University of Wisconsin-Milwaukee managed to build additional housing despite decreased state funding by partnering with a private development firm for its Kenilworth Complex. The project, which repurposed warehouses in the historic Kenilworth district, allowed developers to monetize the intrinsic value of the university’s location and grounds. Retail, parking, and rents from students were attractive income streams to investors and ultimately financed the project.
Diverse partnership models like the one used by University of Minnesota-Rochester also offer insight into why student housing development is an attractive proposition. 318 Commons, designed in partnership with private developers, is a mixed-use property that offers residences to UMR students, local residents, and retail space for local businesses. The unique space blends campus facilities, such as a Student Life Center, with tenant community space and market-rate apartments.
Student housing development is a growing asset class for investors and developers, with high-density, mixed-use projects dominating the market. The properties offer reliable, long-term income streams from students, especially when built near colleges and universities with healthy enrollment projections. Northspyre’s platform can help your development team overcome obstacles in the process, leveraging historical data to produce accurate budget forecasts and helping you lower vendor costs to offset high price tags in the acquisition stage.
Book a Northspyre demo today and learn how you can ensure strong returns on your next complex development project.
Tag(s): Real Estate Development
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