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)
Knoxville, TN
Knoxville is home to the University of Tennessee, which has an enrollment of 29,000 students or so. Dorms and purpose-built student housing in Knoxville can accommodate roughly 17,000 students. Meanwhile, the market boasts about 51,000 conventional apartment units. That’s bigger than most college towns on this list.
Compared to other college towns on this list, Knoxville’s economy stands out. It is supported by more than the university; high-end jobs can be found at the Oak Ridge nuclear power plant and research facility nearby.
Knoxville’s five-year average apartment occupancy rate is 95.9%, and today’s occupancy is a bit above that past norm. Typical annual rent growth for the past five years is 3.5%, and today’s year-over-year bump is nearly that sturdy at 2.7%.
Lansing, MI
While Lansing’s performance stats can’t quite match those in Michigan’s other college town, Ann Arbor, the local numbers are “reasonably compelling.”
Lansing is home to Michigan State University, which has an enrollment of 50,000 students. Just over half of them can be accommodated in the 26,000 or so beds offered in dorms and the stock of purpose-built student housing properties.
With a base of about 42,000 conventional apartments, Lansing’s occupancy rate has averaged 96% over the past five years, and today’s rate is a little better than that at 96.5%. Current annual rent growth is at 0.8%, off from the five-year average rate of 2.5%.
Madison, WI
Madison is both the state capital of Wisconsin and the home of the University of Wisconsin, which has a large enrollment of 44,000 students.
Dorms and purpose-built student housing properties provide only 13,000 beds, accommodating just 29% of the university’s enrollment. Because of the shortfall, a comparatively high share of students at the University of Wisconsin live in conventional apartment product.
As the largest location on the list of preferred college market towns, Madison’s stock of conventional apartments reaches 71,000 units. According to RealPage, the comparatively large size of Madison, coupled with the stabilizing economic force of government operations, decreases the market’s downside risk.
Among the markets RealPage examined, Madison posts today’s strongest occupancy rate at 98.1%. That’s a bit higher than the five-year norm of 97.6%. Current annual rent growth of 2% is in line with the five-year average of 2.2%.
Provo, UT
Provo is the smallest market on RealPage’s list of top college towns. It is anchored by Brigham Young University, which has an enrollment of 35,000 students. The university’s dorms, along with purpose-built student housing properties, provide accommodations for 15,000 students.
Provo has roughly 23,000 conventional apartment units. Rents are off 0.9% year-over-year, compared to five-year annual growth averaging 3.2%. Today’s occupancy of 95.9% slightly tops the five-year norm.
“The small market size inherently increases the volatility of performance results,” according to RealPage.
Spokane, WA
Though Spokane may be less of a true “college town” than others on this list, it is home to about 20,000 students who either attend Eastern Washington University (not quite 13,000 students) or Gonzaga University (a little more than 7,000 students).
RealPage noted that enrollment decline in Spokane is a bigger risk than at other locations discussed, since Eastern Washington has an applicant acceptance rate of 96%.
Nearly all students who don’t live in dorms are residents of conventional apartments in Spokane. Fewer than 1,000 beds are offered in purpose-built student housing properties.
Within Spokane’s base of about 41,000 conventional apartments, five-year occupancy averages right at 97%, and today’s occupancy rate mirrors that figure. Current annual rent growth is really solid at 3.4%, although that number is off from the five-year norm of 4.7%.
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