Record Investment in Student Housing
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 suggest 2017 totals will equal 2016’s torrid levels. There is more gas in the tank for the student housing investment sector in 2018/2019?
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 for student hotel style housing 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 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 investment. 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.
Why is Vancouver so Popular in the Purpose Built Student Housing Market?
One notable one might be the preference of the lucrative foreign student market for the city of Vancouver. Anti-foreign policies by President Trump, high cost of living, and anti-immigration sentiments in the US are deterring foreign applicants. Vancouver is well known to Pacific Rim countries, offers a friendly atmosphere to foreign students, particularly from Asia, and Canada allows many foreign students to work and immigrate to Canada.
Add to that the lifestyle in Vancouver with its mountainous seaside communities and recreation opportunities, and the draw for wealthy foreign student’s families is complete.
Colleges and Universities in Vancouver
The Vancouver area is home to at least 12 colleges and universities serving a densely populated in the region. The institutions include Capilano University, Emily Carr University, Fairleigh Dickinson University, Kwantlen Polytechnic University, New York Institute of Technology, Trinity Western University, Langara College, OMNI College, Simon Fraser University and The University of British Columbia (UBC).
Student housing communities can serve many schools simultaneously which makes them more attractive to investors. The cities of Richmond, Surrey, Burnaby and downtown Vancouver are central to these colleges and universities and are close to Vancouver’s major transit line.
Vancouver is in the midst of a severe housing shortage with near zero vacancy rates. That has perked housing investor’s attention. And it would explain why property investment firms such as CIBT have grown so fast. CIBT picks up the equation even further by bringing commercial services in as part of the money making scenario.
For investors, the student housing investment climate is a very attractive and potentially lucrative one. It might one to add to your investment portfolio for 2018.
The 2018 US housing market is looking a little flat, while the Vancouver housing market continues to show strong growth activity. Something to think about.
*This post is not intended as professional investment advice. Prospective investors should speak with a licensed investment advisor and review closely the prospectus of any student housing investment fund.
It’s a fast growing investment opportunity. To learn more contact Joyce Soo of Sutton Seafair Realty in Vancouver BC (604) 273-3155.