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Searching for Higher Rents Near Higher Education

The Relationship Between Rents and Campus Proximity
December 9, 2013
By: Brian Kerschner
Regardless of how students choose to get to campus-be it on foot, bike, subway, or accompanied by an assistant on a golf cart (see critically acclaimed film “Van Wilder”)-they overwhelmingly prefer to live close by. Proximity to the center of student life means easier access to friends, dining options, educational resources, and the like.


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Multifamily investors looking at deals with a higher education angle should understand how campus proximity translates into returns.

In order to quantify a campus proximity rent premium,(1) PPR has mined CoStar’s multifamily data exclusively in college towns where the relationship between rents and campus proximity is less likely to be distorted by additional demand drivers.

Exhibit 1 displays rent premiums for multifamily properties near campuses in 10 of the largest U.S. college towns(2) for which CoStar collects multifamily data.

Each property represented in grey has been categorized in quarter-mile intervals away from its respective campus center,(3) and the average rent premium for each distance is represented in orange. (Note that CoStar building ratings do not vary meaningfully with campus distance, so renters are paying for similar-quality product within each interval.)

For assets less than 1.5 miles away from one of these 10 campuses, average rents are statistically higher than rents for the five-mile-radius average. Investors should take note, however, that these premiums remain modest until a distance of three-quarters of a mile is reached, at which point rents ratchet up considerably.

And though data is sparse within a quarter-mile from campus, the average asset between a quarter-mile and a half-mile commands a 40% premium compared to the five-mile-radius average.

So what does all this mean? It means that for average assets, students (or their parents) will be coughing up significantly more rent only for those apartments that allow for a walking commute of 13.6 minutes or less to class (three-quarters of a mile at a pace of 3.3 miles/hour). This calculation does not, of course, apply to Fridays, during which time there is no such thing as class.

Footnotes


(1) The campus proximity premium compares each building’s average rent level to that of all buildings within a five-mile radius from the campus center.

(2) Schools within the sample include: Arizona State University - Tempe, AZ; Florida State - Tallahassee, FL; Ohio State - Columbus, OH; University of Michigan - Ann Arbor, MI; University of Wisconsin - Madison, WI; University of Colorado - Boulder, CO; University of Maryland - College Park, MD; California Institute of Technology - Pasadena, CA; Duke University - Durham, NC; Syracuse University - Syracuse, NY.

(3) The center of each campus was assumed to be its respective student union, or in the absence of a student union, its respective student activity center.

Brian Kerschner is a real estate economist with CoStar Group.


















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