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Rent Growth Up in Student Housing, Will Supply Hurt?

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The student housing market is witnessing solid rent growth in the fall 2016 leasing session. However, leasing velocity is slowing to some extent, per a recent study by Axiometrics.

In fact, the annual effective rent growth has shown progress on a national basis. Going by statistics, for fall 2016, the effective rent levels have averaged $618 per bed nationally, depicting an increase of 2.3% from a year ago with the majority of properties averaging in the range of 2–4%. Among the universities, Virginia Tech boasts the highest annual effective rent growth of 7.2%, while preleased averaged 100%.

No doubt, enrollment growth is a major driver for student housing assets. Therefore, with a higher education earnings gap – millennials with high school diploma earning just 62% of what the college graduate is making – enrollment statistics is sure to get a boost.

Also, for new, purpose-built student housing properties, there is pent-up demand. Students prefer to shift to these new properties with better amenities than their old, outdated housing. This is expected to drive demand for properties from student housing REITs like American Campus Communities, Inc. and EdR (EDR - Free Report) .

However, rising supply is softening a number of select markets and leading to a slowdown in leasing velocity. Considering the three-year, same-store properties, prelease declined 103 basis points (bps) from Aug 2015, but managed to post an increase of 70 bps from Aug 2014.

In fact, for the current fall semester, over 44,000 beds have already been delivered, and in the next few months the market is expected to witness the delivery of another 3,800 beds. Further, next fall, the study projects the supply level to remain unchanged or be a notch above the current-year level.

Universities with ample supply this year or in the next include Texas A&M University, University of Arkansas and University of Maryland. Therefore, unless new supply is well absorbed by the market, the overall pace of rent growth and leasing might be limited.

Presently, American Campus Communities and EdR have a Zacks Rank #3 (Hold). American Campus Communities has experienced an upward revision in third-quarter and full-year 2016 estimates over the past two months. EdR has a long-term growth rate of 5.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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