Demand for College Dormitories Continues to Fuel Construction

Construction spending for college dormitories will jump 26% this year, and will once again reflect a period of growth, which it's sustained almost uninterrupted since 1996. However, last year spending dropped 8% when projects were delayed by huge material cost increases. For 2007, however, construction spending is expected to increase 6%. Demand for dorm space is driven by enrollment, and when financing conditions are favorable, construction activity is usually greater than enrollment trends. Since 2000, the number of full-time students enrolled at four-year colleges has risen by 2.5% annually, a drastic improvement over the '90s, when annual growth averaged less than 1%. The U.S. Department of Education projects an increase of 107,000 students in 2006, and 134,000 students in 2007. Those figures indicate a need for 482 500-bed dorms by this summer to handle the enrollment.

The ongoing spending boom follows the unusually large surge in enrollment from 2001-03 (523,000 students) when jobs were hard to find and college finances were strained. Finances improved markedly in the last three years. Dorm construction spending growth will eventually taper off but will still remain stronger than the total nonresidential market for the next five to six years. The projected enrollment increase in the next six years is 510,000 students, well short of the 785,000-student increase during the previous six years.

Most of the market's growth is occurring at the rapidly expanding—and very often new—colleges in the Southeast and Southwest. However, older urban colleges are also adding dorm space in an effort to combat declining enrollment that resulted from soaring apartment rents near their campuses.