5 Questions: A report card on the student housing sector
- March 1, 2023: Vol. 10, Number 3

5 Questions: A report card on the student housing sector

by Mike Consol with Anna-Marie Lieb

Like the office and hotel property types, student housing appeared to be in the crosshairs of the COVID-19 pandemic. Students were sent home to be educated virtually and their return was anybody’s guess.

Fortunately, in-person classes are back in session, students are back on campus and looking for a place to live.

Anna-Marie Lieb is head of multi-housing at CrowdStreet, a commercial real estate investing platform.

College enrollment is declining. How steep is the decline, what is the cause, and how big an impact on investors?

College enrollment is definitely declining. Per the National Student Clearinghouse Research Center, preliminary data coming out on the fall 2022 enrollment period showed undergraduate enrollment continuing to decline, albeit at a slower pace than the past two years and almost in line with what was seen pre-pandemic, down a reported 1.1 percent, totaling a 4.2 percent two-year decline since 2020. This is by no means a new trend as the NSCRC’s data shows that enrollment has been on the decline since 2012. Potential factors that have influenced this decline may include the cost associated with obtaining a post-secondary education combined with a relatively strong labor market.

As of February 2022, the unemployment rate among workers aged 25 and older with a high school degree sat at 4.5 percent, per the Bureau of Labor Statistics. Further impacts on declining enrollment may be attributed to the overall decline in the fertility rate, indicating the enrollment decline will continue.

When we look at this overall trend of declining enrollment and the ramifications for investing in the student housing sector, one could think that this equates to doom and gloom. However, it’s important to dive a little deeper and take a closer look at differences seen at the various institutions. As Yardi Matrix reported in its most recent quarterly update on student housing, there are in fact many universities that are experiencing strong growth in applications and enrollment. That makes opportunities in student housing a story of the haves and have-nots. Data shows the most desirable and best-capitalized flagship universities, with selective admissions, strong athletic conferences and brand recognition, are showing the ability to attract students in record numbers.

How has online learning affected student occupancy on and off campus and the types of new housing needed?

Not surprisingly, we did see a strengthening in the shift to increased online learning come from the onset of the COVID-19 pandemic. Per a recent CHLOE survey, 99 percent of surveyed participants project that online learning will encompass at least part of the typical student experience within the next three years, in part because it improves student access to high-demand courses. With this in mind, there is likely to be a trend toward a blended learning environment, with some online classes expected as part of the traditional brick-and-mortar university experience. As such, you can expect student housing to incorporate workspaces for students who may now be taking online classes from their rooms or common spaces.

What changes, if any, have there been to pre-leasing and rental rates?

Overall, we saw very favorable numbers coming out of the fall 2022 pre-leasing period. Per Yardi Matrix, the pre-leasing period ending in September posted a record 96.6 percent occupancy rate, up 2.3 percent from the same period in 2021. Similarly, Yardi Matrix reported an average rent per bedroom for the fall 2022 school year at $789, another record and 4.1 percent above that achieved in 2021. These statistics point to strong fundamentals in the student housing sector, and show it isn’t suffering the same pullback we are experiencing in the traditional multifamily sector, where after record rent growth we are starting to see rents decline.

What kind of returns did student housing investors receive during the COVID years, and what are returns expected to be going forward?

Looking at the CrowdStreet portfolio, we had three exits within the student housing sector that performed roughly in line with initial underwritten projections with one deal significantly outperforming projections. Looking ahead, given the signs of stabilization within the student housing sector, the outlook is favorable for well-located student properties in close proximity to tier 1 university campuses.

What parts of the country or types of colleges and universities perform best?

Overall, when looking for student housing commitments, investors should look for top-tier institutions and well-capitalized universities. Other important attributes include a selective admissions process, as this provides the ability to boost enrollment. It’s also important to understand the supply/demand balance in a given market. We are seeing several markets that are reporting supply shortages.

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