A quick Google search of student housing news is bound to reveal hundreds of results discussing the amenity-laden luxury student housing that looks more like a vacation resort than student accommodations. On the other hand, trying to find news about other less luxurious forms of student housing is nearly impossible.
No one seems interested in hearing about an average student housing building that has the basics – not a lazy river, lavish fitness facility and infinity pools. Perhaps this lack of interest is why there isn’t a lot of investment in middle-market student housing, which is ripe with opportunity and a highly sought-after type of student accommodation.
While some may assume that luxury student housing is the more profitable sector, in many cases, middle-market student housing has better rental growth and lower vacancy rates. In 2015, Axiometrics found that the rental rate of a student bed grew by 2.2% on average, totaling $617/month. Compare this to older properties built in 1998 where rental rates increased by 4.3% to $542/month and buildings constructed in 2002 with a growth of 4.3% to $491/month.
Axiometrics also identified another subsector that can fall into the category of middle-market student housing – student-competitive properties – which are “…conventional properties that lease by-the-unit, but are located within three miles of a university. These properties aren’t necessarily cheaper, though, as Axiometrics found on average they cost $300 more a month on a per-bed basis for off-campus housing, but this varies from region to region. In some areas, student-competitive properties are priced well beneath purpose-built student housing. Most markets where student-competitive properties are cheaper tend to be located in college towns where there are limited high-rise or purpose-built student properties.
These middle-market properties are not only profitable for investors, but they are also a more affordable and practical option for many students who just cannot afford the higher rental rates of purpose-built properties. One student housing group in particular, Scion, has identified the opportunities in this market. The Scion Group has recently invested into older student housing properties nearby campus, renovated them and raised rents; but still had rents much lower than newer purpose-built communities. Students living at these middle-market properties typically will pay somewhere in the range of $50 - $200 less a bed per month than their counterparts living in luxury or newer purpose-built student housing.
The success of these properties should come as no surprise, considering that rental rate was considered the most important factor when selecting an apartment for students (47%). If these middle-market properties are within close distance to the campus and can offer a lower rent, they will inevitably attract the attention of many prospective renters. Next to rental rates, location is the most important factor for students, which is why the majority of these middle-market properties are located no more than 3 miles away from campus.
While these middle-market properties may not be making the list of the 30 most luxurious student housing buildings anytime soon, they are indeed succeeding at delivering an affordable product, while still turning a very handsome profit. Although many students will still be attracted to shiny, new and luxury-laden student buildings, there will always be a large body of students who will choose something a little older and more economical.
SEE ALSO: Is There Such A Thing As Too Much Student Housing?
The Places4Students.com Team