As I drive up and down the drag at the University of Texas in Austin I often ask myself the question, “Does retail work in densely populated college markets?” We know that owning a home or condo in this niche market makes great sense in most cases, but what about retail? I think that the answer is yes and no. It really depends on what good or service is being offered. What is remarkable to me are the traffic rates that a small chunk of campus real estate gets exposure to. The problem is that most of those traffic numbers are poor college kids who would rather conserve their allowance for beer, groceries, or other necessary items.

In the past 10 years I’ve seen numerous well know chain stores come and go here in Austin. That includes a GAP, Barnes n Noble, Baja Fresh, Urban Outfitters, Tower Records, several coffee shops, and many others. All of these located directly across the street from one of the largest universities in the country, within a stretch of four blocks. What these stores are finding out, is that college students don’t make the best market with disposable income. Another thing that many of these retail outlets have in common is a large square footage demand. What appears to be working are the small and efficient floor plans with little room for students to loiter. Those who loiter are generally the ones who will order a small cup of coffee and spend the next 4 hrs getting free refills and occupying your HVAC space.

That brings up another important point, when heating and cooling a building, you are literally paying per cubic foot, and each square foot on the ground will add exponential cubic feet in volume. A good concept could result in a failed entrepreneurial endeavor simply by misjudging the space “requirements” needed to operate. A needed good or service, mixed with a solid space design that occupies small square footage will survive in a college town, the big boys…don’t count on it!

However, in some cases the strategy for a larger retail tenant coming into a college market is not motivated by economics but rather an attempt to create brand recognition or loyalty for these students who will one day graduate to a disposable income. So, in answer to the original question, I guess it all just depends. Meanwhile, I’ll keep driving through campus and watching the comings and goings of the latest effort to penetrate this hard and fickle market.

Having graduated from the University of Texas in Austin with a degree in Economics, I tend to think through the lens of micro and macro economies. This explanation should be really simple. If you think about the country as a whole and how it functions and what factors effect it’s overall production and growth you are thinking in a Macroeconomic capacity. You could even apply a macroeconomic perspective towards a city or state if you wanted to. The point is that it’s a general approach to the economy. A Microeconomic perspective is much more specific and begins to look at the many economies that exist within a larger macro economy. For example, within the economy of Texas we have the oil industry, banking, farming, ranching, technology, etc. Our overall macroeconomic perspective might be quite good if we look at job growth, GDP, and median household incomes. However, what a macroeconomic perspective won’t tell us in this example, is that the farming industry is actually losing jobs, the rising dollar hurts our ability to export and this aspect of our economy is a disaster! So, from afar things are all good, but if you begin to dissect the pieces of the economy you’ll find that some industries are doing quite well and others are not.

So why go to such an extent to explain economics? The beauty of campus housing or college real estate is that we enjoy the protection of a macroeconomic perspective but the benefits of a micro economy. The best way to explain this is to use an illustration that happened here in Austin around late 2001. The tech bubble had just burst and the .com era was over. Austin is and was heavily invested in the technology industry and as our high-paying jobs evaporated so did our housing industry. Most cities in the United States didn’t suffer as bad as the technology centers did during this recession. There was no one left to afford the glut of houses built for the barrage of engineers and business people that serviced these tech companies. However, despite the drop in home prices and the increase of supply on the market all over Austin, those properties in and around the University of Texas retained their value remarkably well. This was one of my first glimpses at how despite a recession in home prices all over Austin, there was a bit of a safe haven located at the core.

To understand how a campus or college real estate market can hold-up during a financial storm you need to understand a few concepts. Most of the owners of college real estate are not from or affected by the local economy. For example here in Austin, many of the condo and home owners are from Houston, Dallas, San Antonio or out of state. Those cities were not nearly as affected by the .com implosion as Austin was. They continued to flourish in banking, energy, medicine, etc while their children or their tenants attended the University of Texas. This widely varied demographic allows a university market to spread their ownership base. Another thing to remember is that universities all over the country are continuing to grow by leaps and bounds and are projected to continue growing at exponential rates. This shows an ever increasing demand for housing within these ever-tightening markets.

Are you lost yet? I hope not! As time goes on, your understanding will no doubt increase. As I’ve suggested before, if you haven’t read our real estate guide book now is a good time to take a look!

I suppose that an initial blog entry in most cases is one of introduction of the author and explanation towards the content. I know that this posting won’t be the most compelling piece of literature that you’ve read, but I hope to get the conversation started about College Real Estate and begin answering the many and varied questions that emerge from such a topic.

First of all, what do I mean by College Real Estate? I’m talking about any and everything related to College or University housing that includes investment as well as basic living necessities. College Real Estate LLC wants to be a resource to students, parents and investors when it comes to determining which campus housing areas are good investments to purchase in and beyond any financial benefits, we’d like to highlight the non financial benefits that come as a result of purchasing and owning property in university markets.

If you haven’t yet, I would encourage you to read the College Real Estate Workbook. This book will go into greater detail on many of the topics covered here in this blog as well as give a little background as to who we are and why we’ve developed such a passion for real estate and the micro-economic principles that apply in the unique environment of university or college-centered housing.