Purpose-Built Student Housing Is Outperforming Multifamily

The purpose-built student housing segment has been a steady winner for many developers for years, faring well even in recessionary and down periods. Students needed a place to live and didn’t always want to reside on campus, especially after freshman year. These off-campus dwellings long offered a robust list of attractive amenities seen in conventional multifamily housing, as well as comfortable apartment layouts with living and sleeping space typically furnished. Students leased by a “bed” rather than a room.

Now that students have been returning each semester to colleges and universities post the pandemic, this asset class continues to attract a steady stream of residents. And a definite sign of this segment’s very healthy state and strong occupancy numbers is that it is outperforming conventional multifamily housing for the first time in a non-contractionary period, according to RealPage Market Analytics. 

In fact, the student category’s rent growth prices are rising at a faster clip than those that fall under the conventional multifamily housing umbrella. In the past, while purpose-built student housing’s numbers were steady and reliable, its rent growth consistently underperformed the conventional multifamily options.

The equivalent of a new report card for each category shows that in the past 120 months, annual rent change for purpose-built student housing has only dipped negative for a total of six months versus 12 months for the conventional multifamily group. The student housing niche even outpaced conventional multifamily for seven straight months beginning with last November 2022. During that period, it averaged annual rent change of 8.8% versus 4.5% for conventional. For those tracking its success, there’s more good news: Only four campuses saw year-over-year rent cuts.

What a difference a few years can make. In the past, conventional housing averaged year-over-year rent growth of about 5%. Student housing averaged half of that. Also, what’s known as student competitive housing—conventional market-rate housing within three miles of a campus—reflected numbers near conventional growth rates but underperformed its larger conventional counterpart.

While developers who focus on the purpose-built student housing category—and some do exclusively—can cheer for now, they shouldn’t depend on this trend lasting indefinitely. The situation may change depending on what housing stock is available for students to lease, what best meets their list of priorities, where their friends head—since that’s a huge influence on their decision making—what prices are set and other factors.

Already, there are some signs that purpose-built student housing may not remain on top since its housing rent growth is expected to taper off. The first indication of that possibility is that May 2023 stats show some decline from earlier peak levels.