Traditionally, when real estate investors think about making the jump from residential to commercial properties, they envision large apartment complexes. While there’s nothing wrong with this approach, I want to argue the benefits of another commercial property option: student housing.

In the following article, I’ll outline five reasons why commercial real estate investors - new or experienced - should consider student housing.

Student Housing Overview

Every fall, over 20 million students attend colleges and universities throughout the United States.

Where will all these students live?

This basic question drives the inherent value of investing in student housing. Regardless of what’s happening in the broader economy, these students need to live somewhere when they begin fall classes, providing tremendous commercial investment opportunities. Furthermore, college enrollments often increase during recessions, meaning that this asset class can also serve as a counter-cyclical hedge to your portfolio.

And, as education enrollment trends continue to grow, investors would be wise to consider opportunities in the student housing market.

In the following sections, I’ll review five key reasons why investors should add student housing to their portfolios.

Reason 1: Positive Sales Trends

In the past several years, sales volume - both in terms of total transactions and total value - has grown significantly.

What does this growth in sales volume mean for investors?

Student housing represents an extremely active space, meaning that investors have the ability to enter A) at multiple asset levels (value-add or stabilized property); and B) in multiple markets and associated price points.

In other words, regardless of your unique investment profile, you can likely find a student housing asset to meet your needs.

Feel free to drop us a note if you need help analyzing student housing trends in your market. This analysis can seem challenging, and we’re happy to help!

Reason 2: Projected Enrollment Growth

I referenced this above, but future enrollment growth constitutes one of the surest drivers of student housing demand. Specifically, the National Center for Education Statistics projects enrollment increases through at least 2029 (and likely beyond, though this is when the organization’s projections end).

As college enrollment grows, student housing will need to grow in conjunction to meet student demand. For investors looking for reliable and stable returns, this enrollment growth should drive investment in student housing.

Reason 3: Asset Diversification

Similar to other commercial property types, investors sub-categorize student housing into classes. Class A constitutes newly constructed properties in major college towns with outstanding on-site amenities. On the other hand, Class B/C properties tend to be older, in higher need of maintenance, have fewer amenities, and be located in less desirable locations.

Each one of these classes offers investors different cap rates and price points, reinforcing the fact that investors can enter the student housing space with a variety of asset options to align with their specific investment profiles.

Commercial real estate professionals can help you identify student housing investment opportunities for your market and unique situation. Need help connecting with reliable ones? Drop us a note!

Reason 4: Exit Options

If you work with commercial real estate brokers focused on student housing, they’ll likely talk about foreign money. More precisely, they’ll tell you that, in the past few years, a quarter of student housing transactions have involved foreign investors.

This inflow of capital has driven up values while pushing down cap rates. For investors looking for exit strategies to dispose of properties, this foreign money will continue to provide sales opportunities and drive student housing appreciation. Bottom line, you’ll have solid options when ready to sell student housing properties in your portfolio.

Reason 5: Value-Add Investment Opportunities

If you pursue a value-add commercial investment strategy, the age of many student housing properties present significant opportunities. Purpose-built student housing didn’t really take off until the early 1990s, which means that many of the first student housing properties built in this initial wave are approaching 30 years old.

And, these older buildings represent prime candidates for value-add acquisitions. By purchasing student housing properties in need of repairs, investors can A) find a lower-entry price point into the market, and B) drive up post-repair rents and NOI. In this scenario, investors have the opportunity to realize greater returns more quickly than through the purchase of stabilized commercial assets.

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We recognize that, even after outlining the above information, breaking into commercial investments in student housing can seem daunting.

That’s why we’re here to help. The Pocket Broker team lives and breathes commercial real estate, so drop us a note to see how we can help you achieve your unique objectives!

5 Reasons to Invest in Student Housing