When COVID-19 lockdowns sent college students home in 2020, many feared the pandemic would establish online learning as the new norm and significantly weaken the student housing industry. However, recent reports indicate quite the opposite. Not only is student housing recovering from its pre-pandemic drift, but many schools, particularly Power Five conference universities, continue to trend upward with year-over-year increases in pre-leasing and occupancies.
In fact, the third quarter National Student Housing Report from Yardi Matrix showed an 87.2% pre-leasing rate for the fall 2022 term and June 2022 rent growth of 5% — the highest Matrix researchers have seen for Yardi 200 universities. Meanwhile 2022’s pre-leasing rate is 10.1% higher than 2021’s and 7.7% higher than the pre-pandemic pre-leasing rate of 2019.
The industry has experienced mostly steady growth since 2009’s average rent per bed of $6331. In fact, according to a recent report from Fannie Mae2, student housing rent growth was neck-in-neck with growth in multifamily through the spring of 2022.
Yardi Matrix reports a current average rent per bedroom of purpose-built student housing of $791 in June 2022, giving student housing the potential for steady income for CRE investors.
Student housing prior to the pandemic
Before COVID-19 struck, the industry expected 2020 to be a banner year for student housing. While the pandemic hindered those projections, effects were minimal and short-lived, positioning the sector for a full rebound.
While many students opted for online courses in 2020, they also decided to remain in on- and off-campus housing. And since many had already signed a lease for the full academic year, the student housing market remained solid overall. JLL research cited a total 2020 U.S. transaction volume for student housing of $6.25 billion with $1.68 billion recorded in the first half. In the first three quarters of 2021, transaction volume was $4.85 billion with $2.52 billion in the first half. And things only continued to flourish through the fourth quarter.
When you compare this latest transaction volume to that of 2011 and 2012, which ranged from $2.5 billion to almost $4 billion respectively, industry growth is obvious.
Traditionally, decreasing, or “compressing,” capitalization rates mean stronger demand from capital and future growth assumptions. On the other hand, increasing, or “decompressing,” cap rates typically signal more risk or lower growth expectations. Although student housing cap rates nearly compressed on top of multifamily during the pandemic, the sector is now experiencing decompressing cap rates compared to multi housing. This is partly attributable to the difference in performance between the two industries during the pandemic. Regardless, current investors haven’t been swayed by cap rate increases.
Blackstone Real Estate Income Trust recently invested a $784-million majority stake in a portfolio comprising eight student housing properties across the United States that included 5,416 beds3. Meanwhile, a recently completed 154-bed complex near Columbia University sold for $84 million. The Columbia University deal marked the second-highest per-bed price ever recorded — $550,000 per bed4.
In 2021, the industry experienced a massive increase in public student-housing investment opportunities, particularly near Tier 1 universities, which include major private research institutions. The sector has shown itself to be strikingly resilient. Similarly, Tier 2 establishments, which include private liberal arts institutions, and Tier 3 colleges, which include major public research universities, are garnering attention from non-traditional investors looking for an attractive basis and healthy yield compared to opposing asset classes.
Thus, the COVID-19 pandemic had minimal impact on the student housing market. In fact, despite inflated construction costs, new projects are still moving forward.
Current student-housing statistics
With the majority of the country showing significantly reduced COVID-19 rates, according to the Centers for Disease Control and Prevention, many educational institutions are lifting mask restrictions and holding more in-person classes5. Students are embracing the return to normalcy as they go back to college, likely suggesting the student housing investment sector holds a promising future.
Even though total undergraduate enrollment in postsecondary establishments slid by 9% between fall 2009 and 2020, industry experts project an auspicious 8% undergraduate enrollment rate increase in the next decade. You’ll see confirmation of these predictions in the uptick in first-time, first-year student enrollment, which increased by 4.2% — a gain of 13,700 students — in spring 2022, compared to the loss of approximately 11,800 spring 2021 enrollees6. Additionally, public, four-year institutions reported a compelling 10.8% increase in freshmen this spring.
Though all investments will experience market fluctuations, the student housing sector has historically shown less volatility than most. If you’re interested in adding student housing properties to your portfolio, we believe it’s best to partner with a real estate investment company that’s already well-versed in this specific sector. Direct investment in student housing can leave you vulnerable to the stresses of property management and maintenance.
Sources:
1Source: https://www.multihousingnews.com/student-housing-continues-to-grow-may-face-decline-in-2018/
2Source: https://www.fanniemae.com/media/43806/display
3Source: https://www.multihousingnews.com/why-more-investors-are-discovering-student-housing/
4Source: https://www.multihousingnews.com/student-housing-in-2022-what-the-experts-expect/
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