Student Housing Shakes Off Pandemic-Era Trends

The student housing industry has recovered from its pre-pandemic slide, according to Q1 numbers from Yardi’s Matrix, with rent growth and pre-leasing coming in strong.

Stephen Shockey, senior manager of portfolio risk and operations at Alliant Credit Union, tells GlobeSt.com that despite reported reductions in enrollment at some schools, the overall student housing sector, in particular power 5 conference universities, continue to show positive trends as evidenced by continued year-over-year increases in pre-leasing and occupancies.

And there is little danger that the shift to online learning during the pandemic will become an established trend, according to Will Baker, senior managing director of real estate finance at Walker & Dunlop, who tells GlobeSt.com that overall, most major operators and students would agree that the online learning experience during COVID was extremely challenging and they do not see the potential increase of online learning opportunities to impose any threat whatsoever to increasing enrollment trends.

Across Yardi 200 schools, preleasing for next fall was recorded at 63.7 percent—13.5 percent higher than the same time last year and 9.9 percent higher than March 2019.

The average rent per bedroom is $777 for fall 2022, an increase of nearly three percent compared to the year earlier.

New Supply Still Limited

New supply continues to be limited; bed deliveries peaked in 2014 and the Covid pandemic further compressed development activity, resulting in positive absorption and occupancy, Shockey added.

“Investors seeking alternatives to conventional multifamily have found student housing an attractive investment option; sales volumes continue to increase and cap rates continue to compress; however, returns on student housing continue to outpace those achieved in the multifamily sector,” Shockey said.

He added that some colleges and universities have suffered enrollment declines that typically translate into less demand for student housing—a trend that began before the pandemic.

“The higher education sector is experiencing continued consolidation, closures and retrenchment,” Shockey said. “However, higher-rated, large and financially strong institutions continue to thrive creating opportunities for savvy investors and lenders in the student housing space. As such, top-ranked, Power 5 universities generally remain attractive investments, particularly for projects that enjoy close proximity to campus, offer full amenities and have bed/bath parity.”

Key Data at Highest Points on Record

Ryan Lang, Vice Chairman of Newmark’s Student Housing Practice, tells GlobeSt.com that net effective rental rate growth, enrollment at major institutions throughout the country, and occupancy levels are largely at their highest points on record.

Additionally, forced negative leveraged conventional buyers continue to rotate toward the student space given its positive yielding risk-adjusted yield profile, “with multiple large scale portfolio transactions pending, we expect continued institutionalization and strategic consolidation throughout the next 12 months,” he added. 

Blackstone Acquisition a Net Positive

Baker said that despite the reduction of information transparency by not having any REITs left in the student space, most players in the student housing industry see the Blackstone acquisition of American Campus Communities earlier this month as a net positive because of the strong vote of confidence it sends to other institutional capital/debt providers in the space.

Baker said that enrollment has grown from 2020 to 2021 in the major student housing markets where the vast majority of student housing transactions are taking place.

Also, pre-leasing at this point in the leasing cycle is far ahead of where it was this time last year (13.5% higher than the same time last year and 9.9% higher than pre covid levels), according to Yardi’s Matrix.

Student Housing Displays Resiliency

Mark Fogel, president & CEO of commercial real estate middle-market lender ACRES Capital, tells GlobeSt.com that despite overall national declines in enrollment, the student housing market continues to demonstrate its resiliency with strong pre-leasing and rental rates.

“While many were initially skeptical of the sector’s strength due to pandemic-related uncertainty, the positive momentum can be attributed to the strength of geographical markets, as well as the desire of students eager for the college experience of living away from home,” Fogel said.