10 Best and Worst Performing Student Housing Markets

A subset of multifamily — student housing, which has generally seen more strength than other property types — has some winners and losers when it comes to year-over-year weighted average net cash flow changes, according to a recent Trepp report.

“As of June 2023, the fall 2023 school year had 85.7% of beds already leased across core universities, compared to the record-high 86.2% leasing rate seen in June 2022 for the corresponding school year and the average rate of 75% in the years prior to the pandemic,” wrote Trepp research analysis Emily Yue. 

“While sentiment towards the student housing property sector has generally been positive, many universities and surrounding multifamily properties are starting to show signs of cracks in their bottom lines,” she continued. “Some schools showing negative signs are public universities that increased spending dramatically over the past decade and are facing a decrease in revenue as student enrollment declines. These universities are now experiencing significant budget deficits.”

To identify the top and bottom 10 performing metro student housing markets, Trepp used a weighted average across three loan metrics: weighted average (WA) trailing twelve-month (TTM) occupancy, percentage of loans with a debt service coverage ratio (DSCR) of less than 1.0x, and year-over-year (YoY) WA net cash flow (NCF) growth.

The top markets were in Madison, WI; Boston-Cambridge-Newton, MA-NH; San Antonio-New Braunfels, TX; Ann Arbor, MI; Sacramento-Roseville-Arden-Arcade, CA; Phoenix-Mesa-Scottsdale, AZ; Columbus, OH; Charlottesville, VA; Raleigh, NC; and State College, PA.

Each of the metros had rising net cash flow growth, zero percentage of properties with a DSCR under 1, and occupancy rates of at least 97%.

The bottom 10, which Trepp also called “top 10 student housing markets to watch,” were Ames, IA; Auburn-Opelika, AL; Greensboro-High Point, NC; San Francisco-Oakland-Hayward, CA; Lubbock, TX; Atlanta-Sandy Springs-Roswell, GA; Columbia, SC; Athens-Clarke County, GA; Tallahassee, FL; and Tuscaloosa, AL.

These more troubled metro markets showed combinations of factors that were cause for concern and that complicated the view. Ames, IA, for example, was the worst. NCF was down 1.6%. Not necessarily a disaster, but a problem when 46.0% of the outstanding loans from the total of $160 million were below 1 and occupancy was 83%. Many clearly are making too little to cover the cost of financing. Number 2, Auburn-Opelika, AL, had a total loan balance of $357 million, NCF growth of 3.6% (not enough to keep pace with inflation), 88% occupancy, and 18.5% of the loans with a DSCR under 1. Least troubled of the bottom 10 was Tuscaloosa, AL, where NCF growth was 5.6%, there is 90% occupancy, and only 3.7% of the loans had a DSCR of less than 1.

Trepp sees a “a tale of two markets: thriving universities attract a higher proportion of post-pandemic student enrollment, and struggling universities whose bottom line is being squeezed may be forced to enter a cycle of decreased offerings due to budget cuts and decreased enrollment,” as the report said. “The knock-on effects will be felt by student housing properties that will see similar bifurcation where performance will either trend in one direction or the other in terms of occupancy, rent growth, and the subsequent impact on debt service coverage.”