4 Key Questions to Ask Before Underwriting a Student Housing Opportunity

Student housing is a dynamic and ever-evolving sector of commercial real estate, with each market operating under its own unique conditions. Factors like supply and demand vary significantly depending on local influences, making it essential to thoroughly analyze the market before underwriting any opportunity. Here are the 4 crucial data points you need to understand to effectively assess the dynamics of a student housing market:

1. Enrollment: Understanding the True Demand

Enrollment at the target university might seem like a straightforward metric, but it can often mislead investors regarding actual demand. Large universities, especially in the U.S., may have satellite campuses or expanding online programs that skew the numbers. It's crucial to differentiate between total enrollment and the number of students physically attending campus, as this directly impacts the demand for off-campus housing.

2. Existing Supply: On-Campus and Off-Campus Inventory

Analyzing the existing supply of beds, both on-campus and off-campus, is essential to understanding market conditions. Key considerations include:

• How many beds are available on-campus?
• Has there been a recent surge in supply, or is the inventory outdated?
• What type of properties dominate the market—urban high-rises, mid-rises, or garden-style developments?
• Is proximity to campus a significant factor, or is the market more geographically spread out?

These factors help contextualize market differentiators and highlight what drives demand in each area.

3. New Supply Pipeline: What’s on the Horizon?

In the last four years, the student housing sector has seen an average delivery of 38,000 new beds per year—down 30% from the 2014-2019 period, which averaged 53,000 new beds annually. While the overall pipeline has slowed, some markets still have substantial new developments in progress. It’s critical to understand the future supply pipeline, as an influx of new beds could affect demand in a specific market and influence your investment decision.

4. Surplus Demand: Is There Room for Growth?

A simple but effective way to gauge a market’s potential is to calculate surplus demand. Start by taking the total enrollment and subtracting part-time students, on-campus beds, off-campus beds, and the new supply pipeline. This gives you a clearer picture of whether the market is oversaturated or has room for growth, helping you make more informed decisions.

Ultimately, understanding these key data points—enrollment, existing supply, new supply pipeline, and surplus demand—can significantly improve your ability to underwrite student housing opportunities. By analyzing the fundamentals, you can better navigate the complexities of each market and make smarter, data-driven investment decisions.