As larger sites close to campus become increasingly difficult to obtain, more developers are opting to deliver boutique, mid-sized student housing on smaller footprints. Investors and developers alike are finding benefits in amenity-rich campus housing over the past 3 to 5 years, which focuses on infill, pedestrian-accessible locations on campus or as close to it as possible. There, the return on investment ("ROI") is more beneficial because developers can market the short walking distances and demand higher rents. While amenities can increase asking rents, they do require extra initial capital and steal space away from potential renters. The solution that many developers have come to is to add a retail component, such as a coffee shop or fitness facility, into a mixed-use building that caters to the public but that can also double as an amenity to student tenants.
Choosing these sites tends to limit a project’s capacity, however. The suite of amenities can therefore drive up rents and make the project more profitable. According to Ryan Tobias, partner, Triad Real Estate Partners,“I feel like most developers would rather do a 250- to 300-bed project right on top of campus rather than 500+ beds even a half mile off.” Mr. Tobias also expressed concern about the remoteness of some college campuses. “Construction costs have come up so much that to build out in a cornfield and get $400 per month rents just doesn’t make sense right now” he said.
For the foreseeable future, the trend in private student housing should continue to focus on small, efficient projects that maximize ROI by catering to wealthier families and offering high-end amenities. It will be interesting to see how the asset class evolves.