Student accommodation has proven its resilience during the ordeal of fire known as COVID-19. Coming out of the crisis, the sector’s performance was robust. As good as it was, however, it’s expected to get even better in a year or two.
“Student housing is incredibly well positioned as many investors who previously focused on multifamily now focus on student housing,” said industry expert Teddy Leatherman, Principal, JLLTold Multi-Accommodation News. “We’ve seen a lot of big institutions reallocate a lot of money to student housing.”
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The outsized performance of the dedicated student housing sector can be measured by two measures. One is the fact that pre-rental in the Yardi 200 – universities with 90% off-campus dedicated housing – is 10 percentage points higher than a year ago and eight points north of the pre-pandemic. Second, rent growth for the upcoming academic year is 5%. In the pre-pandemic year 2019, it stood at 3%.
As prosperous as the industry as a whole is, there are universities, regions, and housing types and locations that are likely to outperform the industry as a whole.
Eclipse the others
This outperformance is driven by segmentation. The most selective universities, those that approve less than half of applicants, score 5% higher than average institutions. Those with more than 30,000 students perform better than smaller ones. Public universities fare slightly better than private ones. Those with higher research funding and capabilities, rated R1, outperform R2 schools.
“The data matches the hypothesis we’ve been working with for some time,” said Jeffrey Adler, vice president, Matrix Yardi. “There is a consolidation within the universities. . . Larger, more selective universities are expanding, and smaller schools outside the Yardi 200 are suffering.
Better quality student accommodation outperforms lesser quality accommodation. Outperformance is also associated with communities that are closer rather than far from campus. Additionally, those offering more types of private units, such as studios and bedrooms, outperform those offering four- or five-unit suites.
Reason: College students and their parents are focused on academic success.
“Barbecues, swimming pools, they’re fine, but they don’t guide the decision,” Adler said. “They want the best Wi-Fi, the best study rooms. Things that take the distractions out of life have to be there, like food delivery. Parents have to write very large checks, so the focus is on the academic.
American universities as a whole are experiencing declining enrollment. Investors in student housing should therefore focus on specific regions and specific universities that offer better development and acquisition opportunities. Observers are unanimous in their belief that the Sun Belt offers great potential. The region, along with the South Atlantic and the South West, showed consistent growth before COVID. In 2020, it saw the fewest declines in enrollment and even saw gains in some areas.
On the other hand, the Northeast presents less certain prospects. Enrollment numbers from this region were inconsistent before COVID and showed the largest declines in 2020. Midwestern states, offering powerhouses such as Ohio State University and the University of Michigan, are expected to continue to attract crowds.
The above results reflect population movement south in recent years, says economist Ermengarde Jabir and data quality analyst Ricardo Rosas with Moody’s Analytics. Additionally, today’s students are less likely to travel across the country to attend college than previous generations.
As a result, the Sun Belt region, where the students were raised, now benefits from their choice of universities.
In an effort to identify specific universities believed to offer greater student housing opportunities, Yardi has compiled a list of schools with the best new development prospects. They had student enrollments of over 30,000 and acceptance rates of less than 70%. Those where less than 60% of students reside in student-only housing and whose rents are projected to grow by more than 3% over the next five years were also included. Skipping California universities due to rent control and regulatory risk, Yardi has assembled a long list of top candidates.
A Sample: University of North Carolina Chapel Hill, North Carolina State University Raleigh, University of Georgia Athens, Georgia Institute of Technology Atlanta, University of South Carolina Columbia, University of Wisconsin Madison, University of Michigan Ann Arbor , University of Pittsburgh, Ohio State University Columbus, University of Minnesota Minneapolis and University of Washington Seattle.
While all of the above contributes to the optimistic outlook for student accommodation, other factors are also at play. Among them is the feeling that the worst of the pandemic is behind us. Students have been forced to shelter in place during the depths of COVID, and now want to be back on campus to bond with faculty and fellow students.
In the fall of 2021, student housing benefited the incoming class of 2021-22, as well as incoming students who had not been allowed to participate in campus life the previous academic year.
“That’s why we’re now seeing record vacancy rates,” Jabir said. “Students really spent over a year not being able to see each other or their teachers, and there was a pent-up demand to be back on campus.”
This, and what Jabir calls “factor agglomeration,” led to Blackstone’s nearly $13 billion acquisition of American Campus Communities in April.
“Last year was a great year for student housing, and investors took notice,” Rosas said.
Meanwhile, fear of an impending recession has not clouded the outlook for student housing. In tough economic times, enrollment tends to increase. People are going back to college to earn degrees, which helps position them for new jobs when the recession ends. “Student housing is considered somewhat recession-proof,” Leatherman said.
Student accommodation is already rented for the fall of this year. Landlords concerned about vacancies who were looking for 95% occupancy now report that they have left substantial rent growth on the table. Many of these investors own both multifamily and student housing. The first has seen a meteoric rise in rents, the second less so. This means that the 2023-2024 academic year could be one of the significant rental growth opportunities.
Leatherman concluded, “It’s a great time to be in student accommodation.”