Student housing has a new mantra: bigger is better

When the Standard, an off-campus student housing complex, opened in the fall in Bloomington, Indiana, and welcomed its first class of residents, there was a distinctly resort atmosphere. In addition to the requisite pool and fitness centers, it also attracted students with two pickleball courts, a dog park and an exercise sports simulator. The complex even used an app to match roommates.

The arms race for facilities in student housing is nothing new, but what is striking about the Standard is its size: 1,000 beds, about twice the size of a typical student house. In fact, the Standard could house 3 percent of Indiana University's more than 34,000 students.

Off-campus student housing complexes across the country are growing larger, some housing more than 1,500 students, and they're being built on prime lots as close to campus as possible, as developers try to better manage their bottom lines.

“Larger projects allow us to have more amenities because we can spread the cost over a larger number of beds,” said J. Wesley Rogers, CEO of Landmark Properties, the developer of standard complexes in 23 states, including Indiana.

But developers face challenges, including higher land costs near campus and the possibility of declining college enrollment.

The move toward larger complexes comes as the industry sheds its image as a niche business run by local landlords and instead attracts more institutional and global investors, said Dave Borsos, vice president of capital markets for National Multifamily. Washington Housing Council. The two largest international investors in the market now are the Abu Dhabi Investment Authority and Global Student Accommodation, a property management company in London.

Bigger investors bring more scrutiny. “The industry is demanding a different level of expectations in terms of efficiency and management,” Mr Borsos said.

One strategy is to fit more students into less space. Some units at the Standard have five bedrooms, a trend Mr Borsos has seen become more popular as developers try to build in more beds.

Despite the tighter rooms, more beds mean lower rent for each roommate. And larger developments also provide more luxurious perks, such as yoga studios, climbing walls and fire pits.

Landmark's largest student housing development is the Standard in Seattle, which opened on September 22 next to the University of Washington. It features two high-rise towers and a mid-rise building, which together will house 1,545 students. The university, which has more than 34,000 students, does not require freshmen to live on campus, as many universities do, making the pool of available residents larger than elsewhere.

The shift to “bigger is better” has accelerated, Mr. Borsos said. Even a few years ago, he would hardly have imagined a complex with 1,500 beds. For a while in the early 2000s, developers gambled that students would trade a longer commute for better amenities and more spacious accommodations. Clusters of students lived in parts of cities that were not always part of the university community and used shuttle buses to commute to campus.

But now developers can fetch higher rents with properties closer to campus, providing a greater return on their initial investment, which can be high. The cost per bed in a residential complex one-half mile or less from campus is $131,244, which is about 77 percent more than student housing farther than two miles from campus.

The higher returns have attracted other developers, who are rushing to campuses with massive developments. Cranes are part of the skyline around the University of Texas at Austin, and construction is underway along the edge of Purdue University in West Lafayette, Indiana.

Core Spaces, which builds off-campus student housing, is embracing bigger and closer. Dan Goldberg, the president of Core Spaces, said there had been “a proliferation of purpose-built housing further and further away from campus,” but that the trend had peaked. The company has since transitioned. “We normally build high-rise buildings of fifteen to twenty floors as close to the campus as possible,” he says.

But securing land near campus is often expensive and subject to local zoning regulations. Projects can take years to get off the ground. Despite the challenges, Mr. Goldberg believes “closer to campus” will outlast other trends.

“We saw competitors building bizarre facilities” such as arcades and movie theaters, he said. “What we have discovered over the past five years, what students want, is more well-being, more fitness, more study space and good WiFi.”

But the most desirable amenity is proximity. “Students want to be able to roll out of bed and go to class,” he said.

Core Spaces has developed campus-edge housing in dozens of cities across the United States. For example, the company's Hub on Campus brand extends from the University of California to the University of Florida. The largest, with more than 1,500 beds, is near the Virginia Tech campus in Blacksburg, Virginia.

The developer hub in Champaign, Illinois, opened in 2021 a block away from the University of Illinois Urbana-Champaign and catered to students by offering a rooftop sundeck and pool, a barbecue area and a fitness center with a sauna. Upgrades include smart TVs, memory foam mattresses and sound systems.

The company has additional major developments in the pipeline, including several with more than 2,000 beds in Knoxville, Tennessee; Raleigh, NC; and Berkeley, California. The largest project will be adjacent to Clemson University in Clemson, SC, with more than 2,300 beds. And Mr. Goldberg said he would not rule out the development of even larger complexes.

“We do not put a limit on the size of buildings,” he said, adding that developments are carefully vetted because they depend on market demand.

Still, the move toward larger developments may have its limits, says Jaclyn G. Fitts, executive vice president and co-leader of the national student housing team at CBRE, a real estate services firm.

To fill larger facilities, developers face a daunting “capture rate,” or the percentage their developments appear to fill of the number of students available for off-campus housing, she said. Traditionally, developers aim for a capture rate of 2 to 3 percent, which is high enough to make a profit but low enough to limit exposure if the economy sours and demand declines.

Ms. Fitts sees the sweet spot for off-campus development settling in the 400 to 600 bed range as these are more realistic to fill. “You need to know that there is a demand to fill your homes,” she said. “The economy has to work.”

But Landmark's Mr. Rogers said a 6 to 7 percent capture rate made economic sense “depending on market dynamics.”

The urge to go big could come back to haunt developers, says Anne P. Villamil, an economics professor at the University of Iowa. They may be counting on an endless supply of students, but Ms. Villamil pointed to studies showing that demographic shifts would result in a substantial decline in student enrollment starting in 2025, a trend some call the “enrollment cliff.”

She predicts that fewer students will mean “survival of the fittest” among the apartment complexes that could sit vacant if they can't compete.

“We have been in such a period of uncertainty with all the shocks that have hit the economy, but this is another shock that is clearly coming,” Ms. Villamil said.

However, Mr Borsos said he had seen the same studies and predicted a more modest decline. “Larger public universities will continue to receive far more applications than they can process,” he said.

Will the complex with 2,500 beds become commonplace? “If a developer has access to land at a university and thinks there is enough capacity to fill something bigger, they can,” he said.