Student housing leasing activity is on track for another strong year, keeping pace with fall 2018 activity. According to Axiometrics, student housing was 65% pre-leased as of April, while some companies are outperforming compared to last year. Pierce Education Properties, for example, has seen pre-leasing activity increase 9.3% compared to last year. Overall, student housing owners are expecting similar activity.
“The most notable change in pre-leasing year over year was the fact that most companies started the pre-leasing process earlier—many as early as September—this year than in year's past,” Fred Pierce, founder, president and CEO of Pierce Education Properties, tells GlobeSt.com.
Developers are responding to the plateau in leasing activity. With leasing activity unchanged year-over-year, growth in the construction pipeline is also slowing. “A total of 45,721 beds are expected to be delivered in Fall 2019. This new supply represents a 5.8% increase in nationwide supply over 2018, which is the lowest percentage increase in inventory since the Great Recession in 2010,” says Pierce.
While construction activity is slowing down as the market reaches an equilibrium, there is some room for rent growth. “Some companies raise rents using a tiered system where, for example, rates are scheduled to be increased a selected pre-leasing benchmark,” says Pierce, meaning that rents increase gradually as fewer units are available in the property. It's a much different system that other asset classes, and student housing doesn't have the same data to track rent trends. “Unlike multi-family and hospitality, student housing does not yet have revenue management software to guide the setting of rents,” says Pierce. However, new technology tools could change that. A new program through Entrata is testing beta software that could help to track student housing rent trends.
For Pierce Education Properties, it evaluates rents weekly to look for places to add value. “Pierce Education Properties currently evaluates pre-leasing and rent setting at each of our properties every week,” says Pierce. “During those weekly reviews, we evaluate property and market pre-leasing in the current year versus prior years and we also consider the leasing velocity of individual floor plans. Leasing velocity dictates rate increases, and rates are escalated quicker and higher, the faster the pace of pre-leasing occurs.”
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