Student Housing Construction Continues Amid Rising Demand, Costs

by Katie Sloan

The college experience is alive and well at American colleges and universities. Total undergraduate enrollment is projected to increase by 8 percent — from 15.9 million to 17.1 million students — between 2020 and 2030, according to the National Center for Education Statistics. 

If we can glean anything from the current levels of demand, it’s that many students will seek out housing. Pre-leasing rates hit an all-time high for the second year in a row when nearly 70 percent of beds had already been absorbed by March for fall 2023, notes Yardi Matrix’s Student Housing National Report for the second quarter of 2023. This represented a 7.8 percentage point increase compared to a year earlier. The study notes rents have also been exceptionally strong, increasing 7 percent year over year in March to an average of $829 per bedroom, per month. This is the highest average rent the student housing industry has ever achieved, Yardi states.  

“Demand is most robust in the larger, more competitive universities where enrollment is increasingly concentrated, producing demand for housing both on and off campus,” the report continues. “The housing need is particularly acute in university markets that are in downtowns with prevalent conventional multifamily markets.”

This, of course, facilitates the need for more beds. There were about 70,000 student housing bedrooms under construction at the start of the second quarter — an increase of about 20,000 beds when compared to the previous quarter. There was another 144,000 bedrooms in various stages of development at off-campus properties near Yardi 200 universities at the beginning of April — another increase of 20,000 bedrooms compared to January.

“There are positive trends currently taking place in student housing,” says Art Templin, executive managing director of construction and development for Landmark Properties. “These include — but are not limited to — the continued rent growth in student housing, a significant slowdown in the multifamily pipeline that’s starting to ease construction material and labor pricing pressures in student housing, and subcontractor motivation to competitively price work in student housing given the pipeline slowdown in multifamily and other sectors.”

Increasing enrollments, rents and bed counts are all met with enthusiasm. However, many of the current under-construction projects were financed in a different environment. A lower interest rate environment. A more amicable environment.

“Despite the growth, higher interest rates, reduced debt-market liquidity and weakening investor sentiment are putting a damper on development,” Yardi’s report notes. “At the start of the second quarter, there were approximately 70,000 bedrooms under construction…however, the number of beds in pre-construction phases remains unchanged from last quarter, so as projects begin to deliver, there may not be as many developments to backfill in future years.”

Universities Under Construction

The impact of this market’s pros and cons has been felt a bit unevenly, says Arne Goldman, director of business development, Marous Brothers Construction in Willoughby, Ohio. 

“Off-campus student housing projects are being placed on temporary hold as developers try to overcome much higher interest rates and increased construction costs,” he says. “We are working with several through the planning and pre-construction phases on multiple off-campus projects that will likely proceed through entitlements and then pause until interest rates are reduced by at least 200 to 300 basis points.”

The pause experienced by off-campus developments won’t necessarily extend to on campus, Goldman believes. This will be especially true, he says, at colleges and universities that continue to see enrollment increases and those with public-private partnership (P3) activity. 

He points to Marous’ full pipeline as evidence of this. 

“We are about to break ground on a major project for American Campus Communities and the Purdue Research Foundation immediately adjacent to the Purdue University campus,” he says. “We are currently working through the pre-construction phase on two other major student housing initiatives with American Campus Communities as well. Additionally, we’re ready to start two more on-campus projects — one is new construction and the other includes multiple phases of renovations to existing residence halls.”

The 1,000-bed project at Purdue will be situated on Third Street and McCormick Road in West Lafayette, Indiana. The project will consist of 401 units serving primarily Purdue students. Completion is scheduled for fall 2025. 

The university is also carrying out a detailed study to develop a new student housing facility adjacent to its existing Hillenbrand Residence Hall. The university anticipates the Board of Trustees will consider a new facility project for approval this summer. Both projects are part of Purdue’s transformative education initiative to increase student success and value by adding housing capacity to ensure there are on-campus living opportunities for undergraduate students at the university’s West Lafayette campus.

Purdue notes its enrollment has increased by 31 percent since 2013. After these projects are completed, the number of on-campus beds will have increased by 35 percent. 

Schuyler (Sky) Sanborn, executive vice president and COO of Broeren Russo Builders in Champaign, Illinois, notes his firm is also experiencing robust activity, despite the current financial challenges. 

“We are seeing more student housing activity now than ever, whether it’s work in progress, feasibility testing with a developer, or pre-construction on projects about to kick off,” he says. “From our perspective, interest in the student housing market does not appear to be waning, and we thrive on creatively delivering in spite of the challenges facing the industry.”

Broeren Russo is currently wrapping up Pacifica on Green, a 402-bed development in Champaign, with partners Windfall Group and HH Fund. It will serve the University of Illinois at Urbana-Champaign. The firm is also working with Gilbane Development on The Hive, a new 499-bed community in Iowa City, Iowa, which will serve the University of Iowa when it is completed in 2024.  

Trending Amenities

In terms of construction trends, Goldman notes he has seen a continued use of panelized wood frame and cold-formed metal stud wall systems for mid-rise projects, which increase job site efficiency and productivity. Sanborn also sees the industry trending toward efficiency, in more ways than one.

“In these projects [Pacifica on Green and The Hive] and other recent deliveries, we are seeing a trend toward efficient use of amenity spaces, being thoughtful with design to have right-sized areas that are well-used and active,” he adds.

Pacifica on Green will include a state-of-the art fitness center, luxury coffee bar, outdoor and indoor lounges, numerous study areas and recreation spaces. The Hive will feature a clubhouse with game room, large fitness center, yoga studio, a social/study lounge with a “tech bar” and a sixth floor “rooftop” deck with views and two enclosed courtyards. The courtyards will boast a hot tub, large outdoor television, barbecue grills, fire tables, and space for outdoor exercising, gaming and relaxing in hammocks.

Landmark Properties is also hard at work on numerous projects. The firm is finishing up the Standard in Seattle, a 1,500-plus bed project near the University of Washington. It will feature a pool deck, fitness center, sauna, coffee bar, multi-sports simulator, clubroom, academic lounge, grills, games, firepit and hammocks. 

“Our current amenity program provides game and clubrooms, study rooms and outdoor facilities that successfully deliver a comprehensive package addressing our resident’s needs,” Templin says.  “These continue to evolve as multi-functional areas where every interior and exterior space can be used for live, study and play.”

Amenities are similar at a new 435-unit community near the University of Southern California’s (USC) campus in Los Angeles. The new residential community will be one of the largest purpose-built student housing developments at USC. While plans are still progressing, Landmark expects to deliver more than 1,500 beds for fall 2026.

The community will include a clubhouse, resort-style pool, grilling area, lounge, computer lab and fitness center. It will also feature more than 20,000 square feet of retail fronting the Banc of California Stadium, a soccer facility. Landmark Urban Construction will serve as general contractor.

Another Landmark project is The Mark Philadelphia, a 363-unit community adjacent to the University of Pennsylvania and Drexel University in Philadelphia. The 34-story project will feature 363 units ranging from studios to six bedrooms. The development will feature a signature rooftop amenity area with a pool, hot tub and lounge area that overlooks Center City Philadelphia. Residents will also be able to access 24-hour study lounges, a computer lab, sauna and 24-hour fitness center. The Mark Philadelphia will include 55,938 square feet of office space adjacent to the high-rise portion of the development. The project will welcome its first residents in fall 2026. Landmark Construction will serve as general contractor. 

A Focus on Finance

Templin notes Landmark’s role in a project’s construction is strategic during volatile times such as these. 

“The more variables you can control as a general contractor to affect a successful outcome and delivery date, the better,” he says. “Landmark has rolled out additional measures to enhance its execution strategy, such as expanding our self-perform capabilities at the general contractor and subcontractor levels, in addition to having a more hands-on approach in procurement, and especially for long-lead-time items.” 

Even if a developer can’t be as hands on as it would like, there are still ways to reduce risks — and costs — notes Blake Omlin, pre-construction manager at Juneau Construction Company. 

“Working hand in hand with all stakeholders to identify cost saving solutions is as important as ever,” he says. “However, it is critical to take the next step, think outside the box and determine how to mitigate escalation or long-lead uncertainty. Utilizing off-site storage to order materials early in the life of a project can alleviate escalation and long lead concerns.”

Omlin adds that it’s important to maintain strong relationships with subcontractors during these periods as well. That’s because many have a solid regional presence and the resources to support large-scale projects. They can also, Omlin notes, travel to cities that may not have the labor pool required for these bigger developments. 

Even with these tips, there’s little denying that the current interest rate environment has done a number on cap rates. Pre-leasing activity, rent growth and asset performance may be top notch, but the ever-higher cost of debt is projected to have an impact on projects that would have gotten off the ground in 2024 and 2025. 

These budgetary woes extend beyond universities and their public-private partners. The State of California, for example, was supposed to dole out nearly $4 billion in loans and grants that would have facilitated the development of thousands of student housing units at affordable rates. The money was earmarked for campuses in the 2022 budget, but Gov. Gavin Newsom has proposed delaying a majority of these funds to help balance the state’s $22.5 billion budget deficit for 2023 and 2024.

Like rising interest rates, the loss of these funds is felt by some more than others. There were 30 campuses that still submitted plans to build as many as 12,700 additional dorm beds with low rents. These projects total about $2.1 billion, according to CalMatters, a non-partisan, non-profit news organization focused on California. This includes 1,553 affordable beds at UC Riverside, 517 beds at San Jose State and 117 beds at Lassen Community College in northeastern California. 

The University of California system has plans to use the grant money to help supplement the costs associated with building an additional 22,000 beds by 2028. This would include graduate housing on campuses like UC Merced, which currently offers just nine beds to grad students. 

Whether the balance of these funds will come next year, in multiple installments, or at all is anyone’s guess. Sanborn knows the student housing construction industry is predicated on budgets and, like the rest of the world, has been fraught with uncertainty. 

“If the past few years have taught us anything, it’s to be prepared for the unexpected,” he says. “Yesterday, it was a pandemic and material shortages. Today, it’s inflation and interest rates.  I can’t tell you what it will be tomorrow, but I can assure you it will be something, and failure is not an option. While we can’t know exactly which new hurdles are going to pop up along the way, we know we are ready to meet them with creativity, flexibility and drive.”

Nellie Day

This article was originally published in the May/June 2023 issue of Student Housing Business magazine.

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