Publications

- December 1, 2019: Vol. 6, Number 11

Smaller classes in session: Undergrad enrollment declining; should student-housing investors be worried?

by Andrea Zander

The United States is the world’s largest student-housing market, attracting the highest volume of investment capital each year. Annual student housing investment volume has more than tripled since 2014, reaching $11 billion during 2018, reports CBRE. And the prices for U.S. student housing investments have never been higher, reports Real Capital Analytics in June 2019.

Thus far, developers have opened 47,000 new student-housing beds across the United States in time for the fall 2019 school year according to a new report from National Real Estate Investor. But the occupancy rate at the start of the 2019 academic year averaged 93.2 percent, which is about 10 basis points below a year ago. The empty beds could be due to the fact that overall undergraduate enrollment in America’s colleges and universities has fallen for eight consecutive years.

In addition, the loss of students may cause CMBS loans issued in 2010 or later to become problematic, reports Trepp. There is about $4.5 billion in private-label CMBS student housing debt across 250 loans that are currently outstanding, which represents more than 11 percent of the total multifamily balance. As of August, $331 million in student housing loans were delinquent.

“The student housing delinquency rate of 7.36 percent is far above the post-crisis level for any major [commercial] property category, including the much-scrutinized retail sector, which has attracted much of the industry’s concern,” writes Manus Clancy and Catherine Liu, authors of the Trepp report.

In all, $1.53 billion of student housing loans were made on properties constructed in 2010 or later. Some of those communities are having trouble maintaining occupancy levels and strong rents as they face new competition from these new luxury units.

The decline in college enrollment can be attributed to a variety of factors, including cost: The annual cost of attending a four-year private institution in the United States reached $48,510 in 2018, more than double what it was less than two decades ago. And the average student debt has climbed from about $11,000 in 1990 to around $35,000 in 2018. A U.S. Department of Housing and Urban Development report found “housing costs [are] likely a significant portion” of individual student debt. The cost of housing at public universities has nearly doubled since the 1980s, according to the College Board.

But not all colleges and universities are reporting a drop in applicants. Schools in tighter, high competition markets will have continued demand, and those with lower tuition are seeing their enrollment increase.

Despite some weakening indicators and the heavy cost for students, investors and builders are still committed to the student housing sector.

 

Andrea Zander is website content editor at Institutional Real Estate, Inc.

 

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