SAN DIEGO—There are more first-generation college students than any time in history, and many of those students come from families with more modest income, Pierce Education Properties' CEO and president Fred Pierce tells GlobeSt.com. Pierce Education Properties has become the 14th-largest owner of student housing in the country, as well as the 19th-largerst property manager in the industry, ranking among the top-25 owners of student housing in all eight years that Student Housing Business Magazine has published its rankings. In part 1 of a two-part story, GlobeSt.com speaks with Pierce about how the student-housing sector is reacting to this shift. Stay tuned for part 2 of our interview with Pierce, coming up on GlobeSt.com.
GlobeSt.com: Is the level of income changing with students and their families today, and how is the student-housing industry adapting to meet the financial resources of these students?
Pierce: America's college-student body has never been more diverse. There are more first-generation college students than any time in history, and many of those students come from families with more-modest income.
Nevertheless, an interesting trend is emerging with “purpose-built” student housing. The super-majority of new supply delivered since 2012 (end of the Great Recession) has been urban, pedestrian, mid-rise properties at the very upper end of the market (rents of $800 to $1,000-plus per month). Those new projects are catering to the students with the greatest resources; however, the class-A inventory that was largely delivered in the decade of the 2000s and is very highly amenitized has been repositioned to accommodate the larger cohort of middle-income students, with rents often at 50% to 65% of the levels charged for new projects. As a result, the much broader range of rents has substantially expanded the demand for purpose-built student housing. In fact, our most successful strategy at Pierce Education Properties has been to target first-generation student-housing product (e.g., circa 2000s) and offer purpose-built product at a more moderate price to the middle market.
GlobeSt.com: Are there incongruities between what student housing developers are currently building and what students can afford?
Pierce: Not necessarily, but we advise caution in continued development of very high-end, expensive projects. There is a limited universe of students who can afford the most expensive housing. Thus, we believe there is an increased risk of over-building at the high end of the market.
GlobeSt.com: What is your prognostication for student housing in the long term—say, five years out?
Pierce: America's on-campus housing inventory is increasingly functionally and physically obsolete, which should fuel demolition and new construction of student housing on-campus for the next decade and beyond. Once students have the opportunity to live in state-of-the-art housing on-campus as freshman, it serves to increase their desire for high-quality housing when they move off campus. This trend is expected to increase in coming years since a higher percentage of on-campus housing comprises recently completed projects. We also project further consolidation within the industry in coming years, since the management-intensive nature of the business serves to allow the nation's leading companies to own a larger and larger percentage of the purpose-built student-housing industry, together with institutional investors.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
