Chapter 02: Niche Asset Classes

Section 02: Student Housing

Ian Formigle, Chief Investment Officer
Ian Formigle •
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2 minute read

Outlook

Despite headwinds in the student housing sector related to declining enrollment in higher education, Yardi reported that pre-leasing reached an all-time high in 2023.  As of March 2023, pre-leasing was at 69.7% of beds at “Yardi 200” universities, up by 7.8% year-over-year. Yardi recorded that rents were up 7.0% annually, but transaction volume was down significantly, recording $148 million in Q1 2023 compared to $1.5 billion during the same quarter last year.

Figure 10:  Student Housing Pre Leasing by Year

Retail Market Fundamentals 1

Source: National Student Housing Report, Yardi Matrix, 2023.

Looking at larger demographic trends, it appears that overall reduced enrollment in colleges and universities, combined with declining birth rates, may pose future challenges to a number of schools. At a national level, college enrollment has been on the decline since 2012 and potential factors that have contributed to this decline may include the cost associated with obtaining a post secondary education combined with a relatively strong labor market.

It appears that overall reduced enrollment in colleges and universities, combined with declining birth rates, may pose future challenges to a number of schools.

Observing the overall trend of declining enrollment and how it impacts investment in the student housing sector, one could suspect that this equates to sustained negative headwinds. However, as Yardi reported in their most recent quarterly update on student housing, there are, in fact, many universities that are experiencing strong growth in applications and enrollment. In fact, Yardi states that some of the most desirable and best-capitalized flagship universities, with selective admissions, strong athletic conferences, and brand recognition, are showing the ability to attract students as their enrollment is growing.

Opportunity

We see the opportunity in the student housing sector as dichotomous with location playing a key role in choosing the right investment. We believe the more desirable and well capitalized flagship universities will exploit their competitive advantage to attract students. This could propel the student housing markets in areas with large universities at the expense of markets with smaller institutions and community colleges, especially those with declining enrollment.

This leads us to be generally bullish on Tier I universities with large endowments (schools that are expected to bring in at least $100 million per year in research grants, plus have selective admissions and high-quality faculty), particularly those with large student populations, strong research programs, and affiliated with major conferences.

We are seeing several markets that are reporting shortages within the sector which may provide attractive development opportunities in the next few years.
CrowdStreet Advisors - Market Outlook Student Housing

We are focused on deals where the current and projected student enrollment is strong enough to match the current and projected supply of student housing in particular micro markets. Not only do you need adequate demand but you must also factor in “shadow inventory”—means off-market properties in the surrounding community of that market. That's why we are highly attuned to finding the right location and tend to favor those areas that are in close walking proximity to campuses. We are seeing several markets that are reporting shortages within the sector which may provide attractive development opportunities in the next few years.

Though we expect more educational institutions to adopt a blended learning approach, with both in-person and online courses, there is little evidence to support that this blended approach will significantly affect the student populations on campus, considering that in-person college experience is still important to students.

Overall, we see an opportunity in this sector and will focus on areas surrounding some of the top-tier universities with a prudent supply of new housing relative to forecasted demand.

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