An increasing number of industry experts are anticipating a recession in the short-run, the next 12 to 18 months. As a result, capital is increasingly looking for more recession-resistant asset classes, like student housing. Last year had the highest volume of student housing deals in the history of the industry at $10.8 billion. This year, investors have increased their asset allocation for student housing.
“Student Housing is widely known as a recession-resistant asset class,” Frederick W. Pierce, IV, president and CEO of Pierce Education Properties, tells GlobeSt.com. “As the prevailing wisdom believes that the U.S. is either already in a recession or will be by the end of 2019, savvy investors are preparing for this likelihood by altering their asset allocation within real estate to direct a greater portion of their investment portfolio to the niche sectors of real estate that are not highly correlated to the economy. That means more investment in student and senior housing, medical office, health care real estate, self-storage.”
While the market is recession resistant, it will still be affected by a downturn. However, any impacts will be reduced compared to other asset classes. In particular, Pierce expects more stable cap rates in the coming year. “The effect of the oncoming recession will be stability of cap rates and investment values in student housing—particularly as compared to industrial, office, retail and multi-family—as more investors seek the diversification benefits of real estate asset classes that are recession-resistant and have low correlation with the economy,” he says.
Student housing investment will be strongest in college cities with a Division IA football team. These are always popular and active campuses with strong and stable demand for housing. “The logic is simple. The strongest markets are anchored by the largest and strongest universities,” says Pierce. “Public universities that play FBS football tend to recognize the highest enrollment demand and also generally have a more affluent student demographic than non-football, commuter campuses. Additionally, generally speaking, private universities are not strong private student housing markets, as those universities tend to have very large inventories of on-campus housing where they direct their students to live. That leaves little demand for off-campus student housing at most private universities.”
While the risk of a recession is rising, Pierce says that there is still time for investors to make strategic adjustments to mitigate their risk during a downturn. His advice: “Investors would be wise to alter their investment strategies—including their allocations within real estate—in anticipation of the reality of a recession on the immediate horizon.
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Kelsi Maree Borland
