College towns tend to be solid apartment investment choices, according to a recent analysis by RealPage. The research firm noted that the economies of college towns are “comparatively appealing” versus other smaller markets.
Though 2020 will be difficult for many of these markets because of COVID-19, RealPage contended that the long-term fundamentals of colleges towns remain attractive.
College towns feature many unique attributes that make them attractive investment markets despite their smaller size. Because students often stay put after graduation, college towns tend to boast an educated population, which supports job creation, particularly in segments of the economy that pay fairly well.
RealPage also noted that many college markets are regional healthcare centers, which also drives economic growth and apartment demand. Likewise, the presence of a university, regardless of the size, tends to create a higher quality of life, according to RealPage.
These college towns overflow with entertainment tied to the university, from theater productions to football games. “They’re simply places where many people want to live.” RealPage said.
RealPage picked 10 college markets that “look promising” for big-picture fundamentals for conventional apartments (not student housing).
Most Appealing College Towns (in alphabetical order)
Ann Arbor, MI
The University of Michigan is one of the largest universities in the nation, with an enrollment of more than 47,000 students. What distinguishes this market is the lack of risk related to enrollment since the university accepts only 23% of applicants. That’s the lowest acceptance rate for any of the schools on this list, by far.
In Ann Arbor, conventional apartment properties serve thousands of students; there are only about 18,000 beds in the dorms or in purpose-built student housing properties located off campus.
The market has a base of roughly 38,000 conventional apartments, and its five-year average occupancy rate is 97.1%, with annual average rent growth coming in at 4.1%. Though today’s occupancy figure matches the past norm, annual rent growth is only half the typical level. However, RealPage said that any market with positive change ranks as an outperformer these days.
Buffalo, NY
RealPage named Buffalo as an under-the-radar choice for most apartment investors, but one with a lot of upside. With enrollment at the University at Buffalo totaling about 32,000 students, the market isn’t quite as college focused as some of the other locations on RealPage’s list.
However, Buffalo’s conventional apartment market houses the majority of the university’s students. Only a third or so of the students can be accommodated in dorms or in properties that are specifically student housing developments.
The 63,000 or so conventional apartments in Buffalo have a solid five-year average occupancy rate of 95.5% and have registered annual rent growth averaging 2.3%, according to RealPage. Today’s occupancy figure of 97% is above the past norm, while annual rent growth remains in line with the earlier average.
Eugene, OR
Most of the flagship schools on the West Coast are in sizable metros, but the University of Oregon is an exception. It is located in the town of Eugene, which is nearly two hours from Portland and more than four hours from Seattle.
According to RealPage, Eugene’s downside is that is perhaps “too much” of a college town. “Outside of the school itself, sizable employers tend to be limited to local government, healthcare providers and the retailers that support the area’s populace,” RealPage noted.
Even accounting for that risk, Eugene’s 26,000 conventional apartments have performed “incredibly well” in recent years. Five-year average annual rent growth of 6% is the strongest in any market examined by RealPage, and today’s year-over-year rent bump is reasonably decent at 2.2%. Typical occupancy over the past five years is just above 96%, while today’s occupancy rate is only a hair under the 96% mark.
Dorms and purpose-built student housing properties accommodate roughly half of the University of Oregon’s 25,000 students, according to RealPage
Fayetteville, AR
Unlike the West Coast, which offers a limited number of college towns in which to invest, the Southeast boasts several. However, some offer better investment opportunities than others. In several markets, student housing developers overbuilt, which has put pressure on conventional apartments too.
Fayetteville, home of the University of Arkansas, is one of the better-performing small markets in the Southeast, according to RealPage. With an enrollment is roughly 28,000 students, dorms and purpose-built student housing properties offer about 15,000 beds while conventional apartments account for about 35,000 units.
Over the past five years, the local occupancy rate for an inventory of about 35,000 conventional apartments averages 98%, highest among all the markets on this list. Typical annual rent growth registers at 3.1%. Today’s performances are a little under those five-year norms: occupancy is at 96.6%, and rents are up a mild 0.7% year-over-year.
Compared to other markets on the list, RealPage warned that Fayetteville suffers from some downside risk related to apartment construction activity. The construction pipeline totals about 1,800 units, which will expand the total inventory by 5.2% in the near term.
Gainesville, FL
You probably know that the University of Florida’s mascot is the gator. But did you know the city’s nickname is unrelated to the reptile—it’s Hogtown.
In Gainesville, the University of Florida’s enrollment is roughly 53,000 students. As far as state schools go, its acceptance rate of 43% is fairly, so there’s no real danger of a decline in enrollment, according to RealPage.
Dorms and in student housing properties accommodate about 31,000 people, while Gainesville’s base of conventional apartments is almost 28,000 units. Apartment occupancy has averaged 96.6% over the past five years, with typical annual rent growth in that time coming in at 4.6%. While today’s occupancy rate remains in line with the past norm, annual rent growth has slowed, now registering at 1.4%.
RealPage cautions investors about Gainesville for one main reason: student housing developers are really active here. The University of Florida’s stock of purpose-built student housing beds is already the fifth largest in the country, and there never seems to be much of a break in construction activity.
“At some point, this flow of new supply could have a negative impact on the performances of conventional properties,” RealPage noted.
Learn about the other best college towns in 10 Best College Towns for Apartment Investment, Part 2
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