Urban universities must be real estate savvy

You may be hard pressed to find a university mission statement that expounds the importance of managing campus real estate. But in an era of rising property prices and urban land shortages, universities are forced to understand the real estate market or get left behind in the urban hustle for property.

In Canada, this pressure is being felt strongly, and several institutions across the country have made strategic moves to solidify their physical presence in the urban milieu.

Strategic moves

Over the past five years, in two of Canada’s largest cities – Toronto and Vancouver – the price of real estate has risen exponentially. Toronto’s housing market alone grew by 24% in the second quarter of 2017, while overall commercial real estate was on track to increase by as much as 50% over the next few years.

In this context, the University of Toronto did not wait until a pressing need arose before they chose to purchase a new property. Rather, in August 2017 the university purchased three occupied buildings adjacent to their St George campus, happy to act as landlords for the foreseeable future.

The current tenant, the Centre for Addiction and Mental Health, is one of the university’s ‘affiliated hospital partners’ and their current lease agreement runs until at least 2038.

Although buying a property that you do not intend to use immediately may seem like a waste of energy, the move is an important one in light of the city’s current land shortage. Toronto has the lowest commercial vacancy rate of any North American city and Toronto’s universities have to be creative about growth.

Too often, mature universities with aging facilities find themselves on the buying end of property deals, a position that has not been favourable over the past few years. Advanced purchases may be the only way to build assets for future growth.

In Canada’s social democracy, many have called on the government to intervene and slow the growth of real estate prices. The government’s response over the past year has been to limit foreign investment in the housing market and slowly raise interest rates.

But even with these regulations, only certain neighbourhoods are experiencing the slowdown in price hikes. High-demand neighbourhoods, like those that surround universities, still report growth in prices despite the expected slowdown.

Supporting students

Despite the rise in urban prices, not all universities face real estate pressures or need to enter the market. But their students do feel the pressure. Students feel the immediate squeeze as they look for affordable rental units in neighbourhoods bordering the university.

Many institutions need to incorporate students’ realities into their real estate strategies. In Vancouver, in 2017, the average price for a one-bedroom apartment was CA$2,090 (US$1,650), a 15.5% increase from the year before.

Although many cities have limits on how much landlords can increase rents, the appealing profits available by renting via Airbnb are moving some landlords to repurpose their rentals for short-term use, while others are quick to sell and make the most of the sellers’ market.

Universities need to support their student bodies who are struggling financially as the prices increase. Two classic interventions are worth noting:

• • Developing alternatives to high-priced university residences are a great option. Initiatives like co-op housing are a promising way to keep costs low.
  
  
• • Developing a culture that supports commuters means that students can live at home or outside high-end neighbourhoods. Some universities are even making commuting more appealing by offering ‘crash pads’. At Ryerson University, the idea of ‘crash pads’ has led to a Commuter Hostel that students can book for only US$28 per night to support off-campus students.

What does the future hold?

In many countries, long established institutions like universities are prone to take a traditional approach to their business interests. In the real estate market this means buying or selling property near the university, as needed. But two trends in commercial real estate may offer some creative ideas for universities that want to get ahead of the game and plan for their long-term real estate sustainability.

First, universities should experiment with emerging ideas of ‘space sharing’ or ‘hoteling’. This is the practice of having a more flexible use of office space that allows people to work from home and share offices when they work on campus.

Too often, office sharing at universities is a stifling arrangement for contract faculty, with little sense of community or organisation. But in the corporate world, open-concept office spaces are frequently designed for people who work from home at regular intervals – just like professors. Space sharing, however, is not a reproduction of the industrial cubicle. Rather, aesthetic designs with glass partitions, greenery and community spaces are the ideal.

Finally, when the real estate market gets too hot at home, institutions might consider investments abroad. Whether we like it or not, diversifying real estate holdings applies to universities as well as private investors. And other markets may offer new opportunities for both investments and programme expansion.

For many universities, internationalisation is at the core of what they do. But as institutions send programmes and students abroad, why shouldn’t universities also be savvy consumers and pursue investments in the countries to which they export programmes? And capital-heavy branch campuses should not be the main approach.

Looking for buildings in growing neighbourhoods that can serve as investments and multi-purpose campus spaces might be safer route. Much of this is open territory and, although international investments bring a new level of risk, new pursuits are needed for universities that want to remain financially sustainable.

Grace Karram Stephenson is a post-doctoral fellow in the department of leadership, higher and adult education at the Ontario Institute for Studies in Education, University of Toronto, Canada.