Where Student Housing Earns High Marks

Student housing proved its resilience during the trial by fire known as COVID-19. Coming out…

Student housing proved its resilience during the trial by fire known as COVID-19. Coming out of the crisis, the sector’s performance has been robust. As good as it’s been, however, it’s expected even better in the coming year or two.

“Student housing is incredibly well positioned, because a lot of investors previously focused on multifamily are now focusing on student housing,” sector expert Teddy Leatherman, senior director, JLL, told Multi-Housing News. “We’ve seen a lot of the big institutions reallocate a lot of money to student housing.”


READ ALSO: Student Housing in 2022: What the Experts Expect


The dedicated student housing sector’s outsized performance can be gauged by two metrics. One is the fact pre-leasing in the Yardi 200—universities with 90 percent of dedicated off-campus housing—is 10 percentage points higher than a year ago and eight points north of pre-pandemic. Second, rent growth for the coming academic year is at 5 percent. In pre-pandemic year 2019, it stood at 3 percent.

As prosperous as is the entire sector, there exist universities, regions and housing types and locations likely to outperform the sector as a whole.

U.S. Occupancy. Data and chart courtesy of JLL Research

Outshining others

This outperformance is being propelled by segmentation. More selective universities, those approving less than half of applicants, are performing 5 percent better than average institutions. Those with more than 30,000 students are outperforming smaller ones. Public universities are performing a bit better than private. Those with higher funding and research capabilities, denoted R1, are outperforming R2 schools.

“The data aligns with the hypothesis we’ve worked with for some time,” said Jeffrey Adler, vice president, Yardi Matrix. “There is consolidation within universities . . . The bigger and more selective universities are getting bigger and the smaller schools outside the Yardi 200 are suffering.”

See also  Foreign Investor to Buy Texas Student Housing in $70M Deal

Higher-quality student housing is outperforming lesser-quality housing. Outperformance is also associated with communities nearer rather than farther from campus. As well, those offering more private unit types— such as studios and one-bedrooms—are outperforming those with four- or five-unit suites.

Reason: College students and their parents are focused on academic success.

“The barbecues, the pools, these are nice, but they are not guiding the decision,” Adler said. “They want the best Wi-Fi, the best study rooms. Things that remove the distractions of life need to be there, such as food delivery. The parents are having to write very large checks, and the focus is therefore on the academic.”

Regions, schools

U.S. universities as a whole are enduring declining enrollments. Investors in student housing thus must focus on the specific regions and specific universities offering better opportunities for new development and acquisition. Observers are unanimous in their conviction the Sun Belt delivers great potential. The region, along with the South Atlantic and Southwest, displayed consistent pre-COVID growth. In 2020, it experienced the fewest enrollment declines, and even showed gains in some areas.

By contrast, the Northeast presents a less certain outlook. This region’s enrollment figures were inconsistent prior to COVID, and showed largest drops in 2020. Midwestern states, offering such powerhouses as The Ohio State University and the University of Michigan, are expected to continue drawing throngs.

The above findings reflect the population movement southward of recent years, say Economist Ermengarde Jabir and Data Quality Analyst Ricardo Rosas with Moody Analytics. Moreover, today’s students are less likely to travel cross-country for college than earlier generations.

See also  PeakMade JV Secures Financing for 2 Student Communities

Outcome: The Sun Belt region where college students were raised is now benefitting as they choose universities.

Intent on identifying specific universities expected to offer greater student housing opportunity, Yardi compiled a list of schools with best new development prospects. They featured student enrollments of more than 30,000 and acceptance rates of less than 70 percent. Those with less than 60 percent of students residing in dedicated student housing, and rent growth anticipated at greater than 3 percent over the next five years, were also included. Leaving out California universities due to rent control and regulatory risk, Yardi assembled a lengthy roster of prime candidates.

A sampling: University of North Carolina Chapel Hill, North Carolina State University Raleigh, University of Georgia Athens, Georgia Institute of Technology Atlanta, University of South Carolina Columbia, University of Wisconsin Madison, University of Michigan Ann Arbor, University of Pittsburgh, The Ohio State University Columbus, University of Minnesota Minneapolis and University of Washington Seattle.

Regional Rent Growth. Data and chart courtesy of Moody's Analytics
Regional Rent Growth. Data and chart courtesy of Moody’s Analytics

Additional factors

While all the above contribute to the rosy forecast for student housing, other factors are also in play. Among them is the sense the pandemic’s worst is behind us. Students were forced to shelter in place during COVID’s depths, and now want to be back on campus forging connections with faculty and other students.

In fall 2021, student housing benefitted from the 2021-22 incoming class, as well as arriving students who were not permitted to partake of campus life the previous academic year.

“That’s why we’re now seeing record low vacancy rates,” Jabir said. “College students really spent a year-plus unable to see each other and their professors, and there was pent-up demand to be back on campus.”

See also  IRA Capital Launches Senior Housing Strategy With $107M Buy

This and what Jabir calls an “agglomeration of factors,” led to Blackstone’s nearly $13 billion acquisition of American Campus Communities in April.

“Last year was a great year for student housing, and investors took notice,” Rosas said.

Meantime, fear of a looming recession has not dampened student housing’s outlook. In poor economic periods, enrollment tends to grow. People return to college for degrees helping position them for new jobs when the downturn ends. “Student housing is seen as somewhat recession resistant,” Leatherman said.

Student housing is already leased for the fall of this year. Owners concerned about vacancies who sought 95 percent occupancies now report they left substantial rent growth on the table. Many of these investors own both multifamily and student housing. The former has witnessed booming rent growth, the latter less so. This means the 2023-24 academic year could be one of sizable rent growth opportunity.

Concluded Leatherman: “It’s a very good time to be in student housing.”