Opportunity and Volatility

By on Apr 23, 2024 in Matrix

Student housing remains a resilient sector with promising long-term growth prospects, attracting significant capital despite ongoing challenges, according to the latest Yardi Matrix webinar held Thursday. Find the full recording here and find the presentation slides here. However, investors navigating the student housing market require a nuanced understanding of its unique dynamics and the ability to identify opportunities amid volatility.

As of March, the average rent reached $895 per bedroom, marking an all-time high for the sector. A total of 41 universities tracked for the Yardi Matrix National Student Housing Report had double-digit rent growth.

“Long term sector growth is good. This is going to continue to attract capital, particularly in light of what we expect to be ongoing struggles in many of the markets in multifamily. And you’ve got to really kind of pick the winners,” said Jeff Adler, vice president of Yardi Matrix.

Student housing can offer savvy investors higher returns but comes with inherent volatility, characterized by fluctuating performance among different schools. Examples include colleges like Ole Miss and Mizzou, which showcase how poorly performing schools can experience a strong rebound, while previously successful institutions like the University of Nevada, Reno, may face challenges due to oversupply.

“There’s inherent lumpiness, or volatility, in the financial performance because supply tends to come in not evenly, but in large chunks and needs to get absorbed,” said Adler. “As you think about performance at a school, you need to see through those cycles, and/or you can actually use those points as opportunities to buy or sell if you know where the timing is going to hit.”

Success in student housing hinges on a diversified portfolio across markets and strategies, not solely reliant on enrollment or rent growth metrics. Data-driven insights from Yardi Matrix help set realistic expectations and navigate short-term volatility while focusing on long-term fundamentals.

The student housing sector is relatively young, with ample opportunities for development, rehabilitation, and value-added strategies.

“One of the things I have taken away is just how young this industry is. (Around) 80 percent of the inventory is less than 25 years old, which means that there are still opportunities to develop a rehabbed value-added sector and an acquisition strategy,” Adler said. “The primary strategy in the sector has been new development, and that makes a lot of sense, but there are other strategies emerging as this industry begins to age.”

Such strategies involve developing or acquiring properties near flagship state schools, emphasizing demographic trends and acceptance rates. Value-add strategies target slower-growth schools with potential for improvements or strong barriers to new supply. Opportunistic approaches involve timing markets based on supply and demand waves, with considerations for market characteristics and regulatory risks.

With careful planning and informed decision-making, investors can unlock the full potential of this dynamic and resilient sector. View the full event recording with many more student housing investment insights, and get even more data from the latest Yardi® Matrix National Student Housing Report.