Student Housing Stands Out

By on Apr 26, 2023 in Matrix

As the student housing sector continues to outperform other real estate classes during a time of economic uncertainty, tailwinds from the multifamily market and consolidation of the higher education landscape are driving strong performance.

Those were two key takeaways from the latest Yardi Matrix market update, which took place this week and featured insights from Jeff Adler, vice president of Yardi Matrix, and Ron Brock, industry principal. If you missed the webinar, a session recording and the presentation deck is available now.

Student housing demonstrated record preleasing as of March, with rent growth averaging 7 percent across all university types tracked by Matrix. Less expensive unit types, such as 3-bedrooms, are picking up a higher share of the preleasing inventory, indicating that more students than ever are returning to campus post-pandemic.

“From an operations standpoint, preleasing season has crushed it this year,” Adler stated. “Fundamentals seem to be tied to increasing enrollment at the most competitive schools, which are the winners in the ongoing consolidation of the higher education system.”

The Yardi Matrix student housing data set includes over 1.3 million beds at 2,500 universities and colleges nationwide, including the top 200 investment grade universities across all major collegiate conferences. Known as the “Yardi 200,” it includes all Power 5 conferences as well as Carnegie R1 and R2 universities.

The top 50 largest universities are forecasted to have the most enrollment growth over the next five years, confirming consolidation of the higher education space.

Adler began forecasting the anticipated consolidation in a Fall 2021 webinar and the trend continues to evolve, but is reflected in high demand for preleasing at colleges in urban areas and with multifamily shadow markets.

In a notable demonstration of the trend, Southeastern Conference (SEC) schools logged the most annual rent growth of any Yardi 200 conference at 11 percent.

“This is influenced by significant run ups in rents in the conventional multifamily sector – in and around the cities where the SEC schools are located,” noted Adler. “The tailwind coming from the multifamily sector has a significant effect on operating results.”

That includes schools like the University of Arkansas, University of Mississippi and University of Tennessee, which were among the top performers for rent growth and preleasing growth over the last quarter.

Other key takeaways from the presentation included:

  • Deliveries of new student housing stock dipped in 2022 but are expected to rebound this year.
  • Transaction activity has slowed due to higher interest rates. Investors backed off of purchases dramatically in Q1 2023, with only $148 million in sales completed, down substantially from the $1.5 billion recorded in the first quarter of 2022.
  • Significant development and transaction activity may not take place until 2025/2026 after the economy improves and interest rates are lower.
  • California is not the only state experiencing significant shortages in student housing. That’s also taking place in Florida (Florida Atlantic University, Florida A&M), at the University of Arkansas, the University of Tennessee and the University of Cincinnati.
  • Florida is a hot spot for student housing development, with over 12,000 bedrooms under construction around four universities.

Bottom line, the student housing sector is one of the hospitable places for investors these days, even with the economy in flux.

“Student housing is in the best position compared to other real estate asset types because of continued high performance,” Adler said. “There are multiple paths for investment in student housing, there isn’t just one way to succeed.”

Learn more about the student housing market conditions from the latest Yardi Matrix National Student Housing report, released quarterly.