The phrases “development boom” and “student housing” have been unmistakably linked in the Ithaca development lexicon over the last several years, as the constant need for the latter significantly contributed to the beginning of the former.
But while official data is scarce, recent trends show the seemingly bottomless demand for student housing might have actually met its bottom, or is at least approaching it. What that means for landlords, and future development patterns, is still very murky and might not be known definitively for years to come.
There’s certainly no shortage of student-focused, or student-exclusive, housing in the development pipeline for the next several years. The Maplewood Apartments are set to open in the next few weeks, catering mainly to Cornell University graduate students, while projects downtown like City Centre are sure to garner its fair share of student tenants as well. That’s to say nothing of projects that are on the horizon and could be approved for construction in the next year or so, such as the North Campus Residential Initiative, a 2,000 bed-expansion for Cornell under-grads, along with potentially a redevelopment of the East Hill Plaza that could add more student beds and a massive Varna project that is still in its infancy.
This influx of housing would normally be welcomed, since the development conversation over the last several years always revolves around densifying and providing more housing for students so that other housing can be dedicated to normal residents, likely without parental backing, who can’t afford the higher student rental rates. But, though hard data is unavailable to the public on the topic, many officials on either side of the development process said vacancy rates are higher than normal and rising, with the rental market struggling to sustain itself just with the current housing stock. While the evidence is almost strictly anecdotal at this point, so many parties are saying the same thing that it has become difficult to ignore.
“We are hearing the same complaints and it is getting stronger than it has in the last few years,” Tompkins County Assessor Jay Franklin wrote in an email. “Ten years ago, I would say that vacancy wasn’t an issue at all. But starting 2 years ago, we started hearing more from landlords about vacancies they were experiencing. I think it will only get worse with the number of apartments we have being built, are in the planning stage, and also the projects that haven’t been formally announced yet.”
Perhaps one of the most subtle, but strong, indicators of market changes is the shifting interest of some student housing stalwarts. Visum Development has cut its teeth in the Ithaca development scene through numerous projects centered around Collegetown and focused on the student renter population. Yet recently they have begun to stray from that successful recipe; Visum is now involved in the bidding to redevelop the Green Street Garage downtown, and has seemingly backed off plans to build student housing where the Nines restaurant currently sits. Visum CEO Todd Fox said he feels the weakening of the student market is hard to deny at this point, which has motivated his company to look elsewhere for profitable development opportunities.
“You’re definitely seeing a higher vacancy rate across the board because of all the new inventory that has come online,” Fox said. “Most of the growth has come in the student housing market. Because of all the new student housing beds being added to the market, we are starting to see price compression in rents [...] You cannot deny how it’s becoming increasingly difficult to lease apartments and how it’s taken significantly longer to get buildings rented. If you don’t think there is softening in the student housing market you’re either delusional or uninformed.”
Fox did not respond to questions regarding the possibility of a student housing “bubble,” but did say overall he’s optimistic about the general development future of Ithaca. Tompkins County Deputy Commissioner of Planning and Sustainability Megan McDonald wouldn’t go so far as to say the student housing market is weakened, but did relay that she too had heard of landlords struggling to fill units recently, particularly in places not directly adjacent to Cornell University or Ithaca College.
“Unfortunately, there isn’t a good source for current data on vacancy rates for the student-focused market specifically to be able to say the student market is ‘softening,’ but we have heard anecdotally that landlords renting units for high prices in less-than prime locations are having a harder time filling those units,” McDonald wrote in an email. “Developers starting big projects geared toward students are certainly invested in having adequate demand for their product and would typically analyze demand prior to moving forward with construction [...] Competition for land in that prime area has been intense, so it makes sense that we would see local developers starting to look at the rest of the market.”
McDonald also said market demands are changing, with students less likely to room together in a large structure, like a 5-bedroom house, and more likely to stick with a one- or two-bedroom house. If development follows that trend it could bode well, as those types of units are more appealing to a wider-swath of the population, including young professionals who have already graduated and older people moving into retirement.
Landlords Association of Tompkins County Vice President Brian McElroy confirmed that they are hearing constant stories of landlords having to reduce monthly rents significantly and, even after that, still struggling to occupy their properties.
“A lot of landlords who are having a hard time renting their apartments,” “I know of several landlords who are sitting on empty apartments, who have taken their rent down to 2012-2013 prices who still aren’t able to fill their apartment. This year has been a lot softer than people have talked about.”
As development continues, the remaining chances to jump into the market grows ever smaller, Fox said. With that comes more anxiety that a developer who gets into the market too late will end up holding the bag, and quite a few unoccupied units, when demand is finally satisfied.
“Real estate is like musical chairs,” Fox said. “Each time a new building gets built, the less opportunity exists in the market. The difference in the real estate industry is that you don’t want to be the last one to grab the chair.”