Student Housing Outlook
The student housing sector has bounced back significantly since major pandemic restrictions were lifted in 2022 and students started to flock back to campuses. Student Housing reached 94.6% occupancy for Fall 2023 in Yardi’s top 200 investment-grade universities across all major collegiate conferences.47 This is a strong recovery, given the low occupancy rate of 88% during the fall semester 2020. Preleasing for the 2024-2025 school year started off strong for the same universities, reaching 25.2% in October 2023, well ahead of last year’s pace of 10.4% pre-leased in October 2022.48
.png?width=700&name=Figure%2014%20(2).png)
Source: National Student Housing Report, Yardi Matrix, November 2023.
As per the Yardi Matrix report in November 2023, many of the same large primary state universities that performed well last year have some of the strongest rent growth, with Purdue University, the University of Tennessee, Arizona State University, and the University of Arkansas leading the pack.49 According to RealPage, effective asking rents increased by 7% year-over-year in November 2023. The student housing sector's popularity is expected to continue, with many students preferring to live close to their educational institutions to stay immersed in the campus experience.50
While the sector is generally recovering, challenges still exist, such as higher interest rates, inflation, and enrollment constraints. College enrollment has been declining since 2012 due to the high cost of education and declining birth rates.51 Despite these facts, flagship universities with selective admission criteria, strong athletic programs, and brand recognition are still growing despite the trend, according to Yardi.
.png?width=700&name=Figure%2014%20(4).png)
Source: National Student Housing Report, Yardi Matrix, November 2023.
Demand for the sector is typically resilient as students require accommodation for their educational experience, regardless of economic trends. A shortage of student housing in many markets, coupled with limited availability of alternative housing options, will likely keep demand high for the student housing sector.52
.png?width=700&name=Figure%2014%20(3).png)
Source: "Fall 2023 Student Housing Rent Growth Leaders," RealPage Market Analytics, October 2023.
We expect the performance of student housing projects to depend more on local market dynamics, such as supply and demand, rather than broader industry trends. Markets with higher projected rent growth may be better positioned to offset today's high interest rate expenses and their impact on NOI. Broadly speaking, we will generally consider deals in areas experiencing a shortage of housing and student accommodation, focusing on markets where the projected supply of student housing aligns with current and projected demand, particularly in submarkets with strong enrollment. To factor in "shadow inventory" (meaning, off-market properties in the surrounding community of that market), we will typically consider projects in areas within a short walking distance of campus, typically within a 1-mile radius.
.png?width=700&name=Figure%2014%20(5).png)
Source: "These Schools Will Get the Most New Student Housing Supply in 2024," RealPage Market Analytics, October 2023.
Our overall stance on student housing from a project location standpoint remains unchanged in that we will consider deals near Tier 1 flagship universities with large endowments (defined as expected to bring in at least $100 million per year in research grants, plus with selective admissions and relatively high-quality faculty) because we believe these campuses will leverage their competitive advantage to draw students, potentially propelling the student housing market in these areas, leaving other institutions and community colleges, particularly those with dwindling enrollment, at a disadvantage.
Historically, our student housing deal flow has primarily been concentrated on development projects rather than acquisitions. Consequently, we are seeing fewer deals lately as developers and sponsors face challenges in construction pipelines due to high construction costs, labor, and debt, as well as difficulties in securing loans. The yearly supply trend for student housing, however, is still significantly lower than its historical average, with only 26,700 beds delivered* in 2022, marking an 11-year low.53 Therefore, despite the shortages in some submarkets of the sector, we anticipate that there may be opportunities for more development. The average number of beds delivered in the 11 years prior was around 50,000, according to RealPage.53 However, despite the delivery hiccups mentioned above, and the resulting supply shortages, approximately 28,000 new student housing beds are set to come online in the Fall of 2024.54 Many of these new beds will be concentrated on university campuses, which are illustrated in the Figure below.
