TEXAS SNAPSHOT, SEPTEMBER 2012
AUSTIN STUDENT HOUSING SNAPSHOT
The off-campus student housing market in Austin is unique when compared to the majority of student markets around the country. From a macro perspective, the University of Texas at Austin (UT) is situated in one of the leading markets in the country in terms of population growth (42 percent from 2000-2011 Austin/Round Rock MSA), job growth (6.1 percent unemployment versus 8.8 percent national average) business-friendly local and state economies and overall quality of life (“No. 1 best city to live in for the next 10 years” — Kiplinger’s Personal Finance, June 2011). UT has a current enrollment of more than 51,000 students and is the fifth largest institution in the country. UT regards itself as a leader in academics, athletics and as one of the leading research institutions in the U.S.
For all the above reasons and more, UT continues to be a huge draw for students both in Texas and from out of state. Despite legislative enrollment limits of approximately 50,000 students, the student housing market in and around UT is one of the strongest student markets in the country today. West Campus (a roughly 10 by 10 block area due west of UT) reported market occupancy for the 2011-2012 school year at 97.8 percent for more than 7,100 beds. For the fall 2012 school year, the market is approximately 98 percent occupied despite 936 new beds being delivered to the market in August. Outside of West Campus, students also reside in the East Riverside submarket (95.62 percent occupancy for 2011-2012 school year) located southeast of downtown and in the north campus/Hyde Park area just north of UT.
East Riverside is home to roughly 8,000 students and tends to appeal to more value-conscious students, while north campus tends to draw more upperclassmen and graduate students due to the mix of one-and two-bedroom conventionally built product. Given the proximity to UT, West Campus remains the primary location for most students in Austin. With the strong historic occupancy, consistent rent growth and high barriers to entry, the Austin student housing market stands out as one of the stronger markets in the country.
From 2004 with the passing of the University Neighborhood Overlay (UNO) through today, the primary trend in West Campus has been the development of luxury, mid- to high-rise student housing. UNO allows for higher density development in West Campus with certain height restrictions. As a result, the area saw a surge of development from 2004 to 2008 with more than 6,000 new beds delivered during that time. As credit markets tightened up during 2008 to 2010, we saw fewer new construction starts, however, some development activity picked up again during the past two years.
Fall 2012 saw 957 new beds delivered to the market. However, given the lack of available land to develop in West Campus, the supply pipeline drops off year-over-year going forward. The fall 2013 forecast shows 802 new beds being delivered, with only 270 planned for fall 2014 and beyond.
Notable new, luxury developments in West Campus include Crescent Resources’ Circle West Campus at 2505 Longview and Phoenix Property Co.’s Grandmarc Austin at 510 W. 26th St. Both of these projects are commanding rents above $2 per square foot and will be fully occupied for the fall 2012 school year. In addition to the mid-rise product that has become somewhat of the standard in West Campus, two publicly traded student housing REITs (Austin-based American Campus Communities and Memphis-based Education Realty Trust) plan on delivering high-end university-affiliated housing during the next two years. ACC’s Callaway House Austin will be the newest all-inclusive Freshman residence hall at UT while EdR’s 2400 Nueces will provide university housing on a 60-year ground lease with UT.
From an investment standpoint, the West Campus submarket is generally looked at very favorably by both developers and buyers of student housing product. The unique geography of West Campus combined with the outstanding market fundamentals creates a student submarket unlike any other in the country. The physical boundaries on four sides of the submarket constrain and define the area. Lack of available land to build appropriate product type in the future will help ensure that supply and demand fundamentals remain in check. Despite legislative enrollment limits, the incoming freshman class for fall 2012 is one of the largest ever and demand for student housing both on and off campus at UT continues to increase.
With the supply pipeline tapering off during the next two years and both market occupancies and rents at relative highs, ARA’s National Student Housing group expects the West Campus submarket at UT to remain a hotspot for investment activity for the next several years. The proximity to UT means virtually every property in the submarket has pedestrian qualities to it. The University of Texas as an institution of higher learning continues to see increased enrollment demand with a limited number of spots for incoming freshmen. With all of these fundamentals in-line, the outlook for the UT student housing market (West Campus in particular) remains strong in terms of occupancy, rent growth, absorption and long-term relevance with both students and investors alike.
— Chris Bancroft, co-director of ARA National Student Housing Group
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