2016 was a record year for student housing in the US. $10 billion was poured into investment grade student housing projects in the US. It was a 64% increase over 2015 investment numbers.
One report suggests 2017 totals will equal 2016’s torrid levels. Is there more gas in the tank for the student housing investment sector in 2018?
According to ARA Newmark Student Housing Group’s 2016 overview, $9.33 billion of the 2016 total was directed toward the acquisition of investment-grade student housing assets priced above $10 million. This means the total market is much bigger.
Add to that the even more impressive numbers in cities like Vancouver and you have a huge and growing investment pool serving the student housing market in Vancouver Canada. The Canadian Economic Forecast is very positive too for 2017 and 2018 and that will make investors more eager to get into condo construction and the rental market. Yet the Vancouver condo market has many pressures on it.
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“More institutional investors are looking at student housing as a viable investment thanks to rising demand that continues to outweigh the current supply” — report from Forbes Magazine
Why the Boom in Student Housing in the US, UK, and Canada?
Why the big interest in student housing investment? It’s a global phenomena and the underlying demographics appear to be fueling demand. That’s drawing money from top investment funds.
- Echo boomers in particular are the key age group pushing the numbers. Enrollment is up to 20 million students in degree granting institutions alone.
- US state governments are withdrawing funding for higher education
- US housing and Canadian housing is at record low availability, and a private investment driven housing solution was needed.
- Investors are liking the ROI and are ready to sink their money into student housing in 2017 and beyond.
- Low interest rates
- Student housing is less vulnerable to economic swings and recessions
- Institutional funds are moving in because they’re less interested in traditional asset classes
“Interest in student housing has been growing steadily, as more investors look towards less traditional asset classes within commercial real estate. Much more institutional capital has entered the student housing space as of late,” — from a report in realtor.org.
Add low interest rates and willingness for big investment firms to participate, and you have record growth for student housing investments. Big foreign investment fund managers want in too. Recently, the Canada Pension Plan and a Singapore Investment group purchased $1.6 billion of properties in the US.
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And the trend isn’t isolated to the US and Canada. Knight Frank reports that purpose-built student housing projects are peaking in the UK too.
Investor demand for student accommodation blocks is so strong that some potential buyers were forced to stand during presentations at a student housing investment conference in a ballroom in Covent Garden, central London this week – from a report in the Guardian .
In terms of risk, this student housing investment sector is less sensitive. Unlike apartment rentals, renters have the financial means and are not deterred by employment fluctuations.
“Rental growth in the sector has proven to be less volatile than that of conventional apartments — partially as a result of the sector being less economically sensitive. Results for some of the largest players in the market show rental growth volatility, as indicated by the standard deviation, was lower than conventional apartments, and capital expenditures are in line with those of conventional apartments,” said Tom Park, senior director, strategy and research, in a statement from irei.com article .
Foreign students are driving part of the demand too. They’re hungry for college and university degrees and their parents are willing to pony up the high price for a North American degree. These students emanate from China, Japan, Vietnam, Malaysia, Dubai, United Emirates, Brazil, Columbia, Mexico, and India.
Article originally published here.