Industry experts predicted at the beginning of the year that 2018 would be a strong year for the student housing industry. That prediction has proven to be true so far, and despite high prices and worries about overbuilding in some markets, here are three indicators that show the investment in student housing remains a stable and wise decision.
Investors continue to pour money into student housing
It’s certainly a strong indicator of market stability that investors continue to gravitate toward student housing investments. The question that needs to be answered is: Why do investors continue to follow this pattern?
Student housing is an attractive option because even when the economy slows down, student housing demand typically increases in recessions as more people enroll in universities in an effort to reinvent their careers or perhaps find a temporary respite from unemployment.
Because student housing is so attractive, investors are likely to spend at least as much to buy student housing properties in 2018 as they did in 2017. The billions they spend on student housing this year may even match the peak year of 2016.
Billions of deals closed in the first half of 2018
According to CBRE, investors are likely to spend more than $10 billion on student housing properties in the U.S. in 2018. Not only is that projection up from the $8 billion in spending in 2017, but it also matches the peak spending of $10 million in 2016.
Deals in 2018 have already totaled $3 billion in the first half of the year, according to CBRE. Although it may seem like that is not enough spending to keep pace with the $10 billion projection, the second half of the year typically peaks, directly correlating to the beginning of the school year.
“Transaction volume in the second half of the year is going to be substantial … much more than in the first half,” said Jaclyn Fitts, director of CBRE’s national student housing service.
New buyers take over from international investors
Foreign investors accounted for a significant amount of the market activity in 2017. They accounted for 40.4 percent of sales in 2017, but that is drastically down to 23 percent in the first half of 2018, according to CBRE. Foreign buyers spent a lot less in the first half of this year than they did last year to buy large portfolios of student housing properties. International investments only accounted for 23 percent of dollars spent on student housing properties this period, according to CBRE. That’s down steeply from 40.4 percent in 2017.
The void left by international investors has been filled by new buyers, which has kept the total amount of dollars spent on student housing high. Not only is spending high, but pricing is rising to new heights due to new buyers and more capital.
The long-term trend has brought new buyers and more capital to student housing in recent years. “We’ve seen more new equity groups and foreign capital flocking to the space for diversification purposes,” said J. Ryan Lang, executive managing director in the Austin, Texas, offices of ARA Newmark Student Housing. “The amount of institutional and foreign money actively pursuing the asset class is driving competition, and therefore pricing, to new heights.”
The student housing market is strong for investors and doesn’t look to be slowing down. With the beginning of the school year less than a month old, investor spending and historical data point toward student housing being a stable investment decision.
DISCLOSURE: This is not an offer to sell nor a solicitation to buy securities. All investing involves risk. Discuss investments with your tax professional prior to investing. Securities offered through Emerson Equity LLC, member FINRA/SIPC only in states where Emerson is registered or operating pursuant to exemption from registration. Emerson Equity LLC and NB Private Capital are not affiliated.