With the economy still plodding along, enrollment at universities and colleges across the country is continuing its upward trend. According to the National Center for Education Statistics, enrollment in college will continue to increase through 2019. This is being driven by a series of demographic shifts. The echo boomer generation (children of baby boomers born after 1980) are reaching the peak of their college attendance years. Overall, a higher percentage of high school students are graduating and are electing to attend college full time. In addition, the average length of time that young adults spend in college has grown from 4 years to 5.5 years. While some investors have preferred to play this trend with for-profit education stocks like Corinthian Colleges (Nasdaq:COCO), the best way may be in a small but growing segment of the real estate market. (For more check out How To Analyze Real Estate Investment Trusts.)
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

No Longer 'Animal House'
For investors, the best way to play this "collegiate renaissance" could be in student housing real estate. Shedding its slum-like pretenses, the sector is benefiting from a unique set of supply and demand factors. According to the Department of Education, more than 3 million high school students are expected to graduate each year until the 2018-19 academic years. This compares with just fewer than 2.5 million in 1993-94. This increase in the number of enrolling students means universities will need to prepare for more students and figure out ways to house them. Space-challenged institutions are already grappling with more students than available dormitory rooms, and large state schools are facing budget caps. Funding simply isn't there to build new housing solutions or dormitories.

A Big Win for the Private Sector
With universities strapped for cash, third-party property owners have been quite successful at providing the necessary supply. Analysts expect the players within the sector to generate double-digit FFO growth until at least 2013.

In addition, student housing real estate operators have been able to charge higher rental rates. Baby-boomer affluence has many parents of today's college students preferring to have them live in the manner they've become accustomed to in their own home. Kitchens, private bedroom and bathrooms, study lounges and even pools are necessities and commonplace at these locations. Analysts expect student housing REITs to grow rents between 2% and 6% this year. (To help you determine if REITs are a good investment in your portfolio, check out How To Assess A Real Estate Investment Trust (REIT).)

Tapping That Tuition Money
Overall, the apartment real estate market and funds like iShares FTSE NAREIT Residential Index (NYSE:REZ) have outperformed the broad real estate sector by more than 9% so far in 2011. With demographics, supply and demand trending in the student housing market's favor, that outperformance should continue. While investors can purchase a broad apartment REIT like Avalonbay Communities (NYSE:AVB) that has operations near college campuses, there are a few pure choices within the sector.

By far the largest in the sector is American Campus Communities (NYSE:ACC) with nearly 137 different student housing properties in its network. The REIT has performed well over the last year and is up around 30% so far in 2011. American Campus offers a strong 3.4% dividend yield and trades for less on a Price-to-FFO metric than some of its peers like Equity Residential (NYSE:EQR). Similarly, slightly smaller player Education Realty Trust (NYSE:EDR) offers investors a strong 3% dividend yield.

For investors looking for more of a growth play, Campus Crest Communities (NYSE:CCG), which issued an IPO at the end of 2010, could be a great bet. The REIT operates 27 different campus communities with seven in construction and more than 25 in the development phase. The firm boasts an average occupancy rate of 88.6% and yields a very juicy 5.45%.

The Bottom Line
With college enrollment continuing to rise and inadequate on-campus student housing affecting a variety of universities, the long-term growth in student housing REITS is assured. For investors, these firms could offer some of the best medium to long-term buys in the real estate sector. The preceding firms, along with traditional apartment owners like Apartment Investment & Management (NYSE:AIV), make interesting plays on that growth. (To learn more about REITs, read The REIT Way.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  2. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  3. Investing Basics

    Tops Tips for Trading ETFs

    A look at two different trading strategies for ETFs - one for investors and the other for active traders.
  4. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  5. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  6. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  7. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  8. Mutual Funds & ETFs

    Top 4 Investment Grade Corporate Bonds ETFs

    Discover detailed analysis and information about some of the top exchange-traded funds (ETFs) that offer exposure to the investment-grade corporate bond market.
  9. Investing

    A Look at 6 Leading Female Value Investors

    In an industry still largely predominated by men, we look at 6 leading female value investors working today.
  10. Term

    What Is Financial Performance?

    Financial performance measures a firm’s ability to generate profits through the use of its assets.
  1. Student loans, federal and private: what's the difference?

    The cost of a college education now rivals many home prices, making student loans a huge debt that many young people face ... Read Full Answer >>
  2. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  3. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  4. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  5. Can I use my IRA to pay for my college loans?

    If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
  6. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!