Student Housing’s Strong Report Card for Fall Semester

As students get ready to return to campuses in a matter of days or weeks with August and early September being the main return times, the purpose-built student housing sector (PBSH) has posted strong numbers for Fall 2023 preleasing and rent growth. The buildings that are off but near campus and lumped together at PBSH are receiving stellar marks for how they’re faring at most of the 200 universities Yardi Matrix tracks in its “National Student Housing Report.” Third quarter 2023 results were recently released. 

The category is expected to continue to perform well, in part since it’s less affected by the overall economic clouds, including the possibility of a recession and continued high interest rates and tightened lending. But for their housing, students also book their “beds”—how units are measured in this sector—ahead of what’s typical for other types of housing.

“With its infamous recession-resistant characteristics, student housing is poised at the top of real estate asset classes to perform exceedingly well in the short and long run. Occupancies and rent growth for academic year 2023-24 are as strong as ever and are expected to remain high at America’s strongest universities,” Frederick W. Pierce, IV, President and CEO of San Diego-based Pierce Education Properties, told GlobeSt.com.

As of June of this year, 86.6% of beds at the 200 universities Yardi Matrix followed were preleased for the fall semester, a 5.2% increase from the prior month and a 0.4% increase over last year. June also was the fifth consecutive month of annual rent growth above 7%–specifically 7.2%–for these schools tracked. The average rent per bed at these schools was $846, a new all-time high. And what’s more, there’s still time for more leasing before all students descend on campus and head to their apartments.

Another impressive sign of strength in this category is that six schools on the list with four or more properties were fully leased as of June and 14 more had leases signed that indicated 95% occupancy. Moreover, they’re not located in just one region but spread out.

Where growth is strongest. Three universities had more than 20% growth in preleasing from a year ago: Ohio University at 27.4%, the University of Southern Mississippi at 25.9% and the University of Mississippi at 23.4%. But Ohio and Southern Mississippi saw their rent growth cut due to the preleasing growth. At Ohio, it lost 3.4% in rent from a year ago and Southern Mississippi lost 2.8% for the same time period comparison. The University of Mississippi’s annual rent growth grew 12%. 

What’s in the pipeline. Investor interest still remains strong, as the pipeline for new buildings expanded by about 28,000 beds since the start of the year with about 153,000 beds in various stages of development in early July.  About 22,000 new beds have been under construction since the start of the year. Where demand is moving briskly is at the University of Texas at Austin, which has the most beds under construction at almost 6,0000. Two years of enrollment growth at the university should help to absorb the new supply. Also doing well is Indiana University-Bloomington where 4,522 beds are under construction and at Florida International University there are 3,553 beds in the pipeline. 

Where all is not rosy. Not all schools reflect similar strong results. The sector has not been totally immune to current economic downturns and local supply and demand dynamics impact preleasing and rent growth in certain areas. For example, one downside was that transaction volume through the second quarter declined about 73% from the same period last year. Louisiana Tech University was only 50.8% preleased as of June, down 12% from a year ago. Boise State University had a bigger loss in preleasing, down 22.2%. compared to a year ago. 

Overall, the sector has felt the effect of higher interest rates and tightened lending in the capital markets. Through the second quarter, the Yardi Matrix report said only about $646 million in transactions occurred, down 73% from the same period last year. Yet, the average sales price per bed fell only by a bit more than last year’s $3,0000 to about $66,000 per bed. But again, not all results are the same. At Arizona State University, the average sales price per bed soared to $178,000, above the Yardi Matrix average.