Three Predictions For 2014
Go big, go small, or go home. Students like a life of extremes (think library all-nighter or toga party) and so will the student housing market in 2014. CA Student Living principal JJ Smith tells us what you’ll see:
1) Micro opps in macro markets
There's been talk of overbuilding, but CA Student Living still sees promise with Main and Main locations at large state schools. They stick with flagship institutions like the University of Tennessee or Purdue "that will always be there," JJ says, avoiding second-tier schools and community college campuses. (If the show Community is any indication, those schools can disappear from the schedule at any moment.) One way to mitigate lease-up risk in the more oversupplied markets is downsizing communities, with an ideal size now between 300 and 400 beds. And being conscious of students' budgets helps, especially given increases in interest rates on student loans, he adds.
2) Smaller units, larger amenity spaces
Well-located projects can have smaller units than something several miles out from campus, JJ tells us. While most developers have a one-to-one bed/bath ratio, properties four to six blocks from the main quad have gone down significantly, with some incorporating two baths for every four beds. In Seattle, CA is even testing 325 SF micro-units, with adaptable furniture like Murphy beds (above). While it all starts with location, developers then focus on high-end design and finishes, "making a dollar look like two." (Optical illusions aren't just for street performers anymore.) There's heavy demand for on-site fitness and business centers, study lounges, and attentive property management, he says.
3) Competition and rising prices
Headwinds that will affect project costs and investment sales: REITs' performance, rising interest rates and cap rates, and rebounding construction costs (lumber and steel have risen 10-12% over the last 18 months), JJ says. With new players entering the market, CA is also seeing more competition on site acquisitions, driving up the firm's basis at infill sites and pushing them to react more quickly. CA has 23 projects on 16 campuses (5,000 beds) slated to deliver by 2015: nine are under construction (398-bed Chicago project called Infinite pictured) and will deliver this August, and 14 are in the approval/entitlement phase for delivery the following year.