As College Enrollments Drop, Pressure Grows on Student Housing

It looked like student housing would see a good year in 2022. Student housing vacancies dropped to a seven-year low. International real estate firm Hines, for example, launched a closed-end fund to target tactical opportunities in the 30 top U.S. metro markets across various niche asset classes, like student housing.

However, overall enrollment numbers suggest that not all is rosy. The change between before the pandemic and now is one million fewer students in college, as NPR reported. Data from the National Student Clearinghouse Research Center compares year-over-year enrollment changes in 2017, 2018, 2019, 2020, and 2021, across public two-year, public four-year, private nonprofit four-year, and private for-profit four-year.

There were only three times any of the sectors saw positive growth. In the fall of 2018, private nonprofit 4-year schools experienced a year-over-year enrollment increase of 2.4%. Then in fall of 2020, public four-year schools had an increase of 0.2% while private for-profit four-year schools had 5.3%. But the declines meant that every sector saw a decrease over the four-year span.

As these are averages across the categories, they aren’t to say that all schools in all locations saw a drop. “During this past year we have seen a regained interest from investors in the student housing sector, which is getting stronger as we enter 2022,” David Druey, Florida regional president of Centennial Bank, tells GlobeSt.com. “With vaccine mandates, students finally returning to in-person academic learning, and international foreign travel resuming both domestic and foreign investors are eyeing student housing projects that they can complete, stabilize, and ultimately sell in the open market.”

Not all schools have suffered evenly. “While there may be an enrollment drop from a broader perspective including tertiary smaller markets, community colleges and junior colleges, we are not seeing an enrollment drop in the ‘top 50’ or so markets, which is where we focus most of our attention on the financing and where most of the private off campus development has occurred,” says Will Baker, senior managing director at Walker & Dunlop, tells GlobeSt.com.

“The biggest challenge from a financing perspective has consistently been to select the best location where the demand is far greater than the current supply,” Druey adds.

Schools also differ in the makeup of their student bodies. “Of course, with lower enrollment numbers, you will see an impact on student housing,” says Courtney Allen, director of housing and residence life at small private university. “My current institution has seen a 5% drop in student housing , but we don’t have a high residential population as we have a majority commuter student population.”

But the impact has shifted over time. While community colleges had the biggest reductions, four-year schools in 2021 experienced about half the total drop among undergraduate students, suggesting that investors keep sharply aware of ongoing trends.