Student housing developers and operators are bullish on rental demand for the 2021–22 school year as well as for the years to come.
“I’ve never been as optimistic about this space as I have been now,” says Wes Rogers, founder and CEO of Landmark Properties, which operates 79 student housing properties totaling a 50,600-bed portfolio worth more than $7.5 billion.
He shares that Landmark’s student housing properties stayed fairly full during the pandemic and it collected 98% of rents. Heading into the new school year, the developer and operator is seeing strong pre-leasing, 6.1% ahead of where it was at the same time last year and 3.8% ahead of 2019.
“Demand for in-person education is not going away,” says Rogers. “COVID only showed that students don’t like the online experience.”
Rogers says with universities announcing plans regarding in-person classes and de-densifying housing on campus, this also is helping create the need for more off-campus student housing.
Michael Hales, president of CA Student Living, which owns and operates over 23,000 beds across 40 markets, agrees.
“Right now, student housing is as strong as it has ever been,” he says. “The fundamentals are some of the best—if not the best—in real estate. Similar to the global financial crisis, student housing has performed really well during the pandemic.”
Hales says CA Student Living also is seeing strong demand for the 2021–22 school year, 92% pre-leased at the end of July, which is five points ahead of where the firm was during the same time in 2020.
Justin Wybenga, vice president of asset services at GMH Communities, adds that while the student housing industry has made a reputation for itself as being recession resilient, it now can add the “pandemic-proven” moniker.
“This year, the uneasiness to commit has seemed to start to abate a bit,” Wybenga says. “Students have shown that they really want to be in the market. The college experience is not the same if you’re not there and involved. That’s confirmed the strong demand.”
For GMH Communities, which has 5,600 beds in its Student Living portfolio, it also is having a strong pre-leasing season, 12% ahead year over year at the end of July and 5% ahead of the same time in 2019.
Investor and Student Demand
In addition to seeing strong demand from a renter standpoint, CA Student Living’s Hales says there also has been a lot of appetite from equity and debt partners, with institutional equity increasing its exposure over the past five years and cross-border capital entering the segment as well.
With capital on the sidelines and accumulating during COVID, there’s more money chasing a smaller subset of asset classes—with industrial and multifamily being prioritized.
“What we’re hearing is capital is very interested in student housing. Student housing tends to be less volatile and pretty recession resistant, and investors see stability in the cash flows,” says Landmark’s Rogers, adding that cap rates have been in the 4 to 4.5 range.
“We are seeing pricing that I thought we would never see in student housing,” he adds. “We are bullish on the space. We feel like there’s a good chance with the interest rate environment that you can see further cap rate reductions in the student housing space.”
Developers also continue to deliver new product to college cities with strong pipelines in place for the future to keep up with demand.
According to a new report from the National Multifamily Housing Council’s Research Foundation, an estimated 46 million people will reach college age over the next decade, creating continued demand. “The Future of U.S. Student Housing Demand,” authored by Paige Mueller and Jeff Havsy of Eigen 10 Advisors, also finds that enrollment in post-secondary schools will increase annually by 1.1% on average from 2021 through 2031. This growth is expected to push the student housing market from 8.5 million beds in 2020 to 9.2 million by 2031.
The report also says that the type of school matters for student housing demand. Most of the growth taking place at public four-year universities, with 448,000 new beds projected. For private four-year universities, demand will come primarily from graduate programs, with 96,000 new beds projected. The demand for student housing at public two-year universities is projected to grow by 79,000 beds.
“If anything, the COVID-19 pandemic reinforced our investment thesis—to focus on top-tier, research-based institutions,” says Hales. “There has been a flight of quality at flagship schools, and some tertiary and secondary schools will see a decline in enrollment that will be picked up by the top-tier institutions.”
CA Student Living has five new developments with 2,600 beds opening for this school year near Georgia Tech, Northern Arizona University, University of Alabama, University of California, Davis, and Arizona State University.
For the 2021, 2022, and 2023 delivery years, the firm has $1.5 billion in active construction projects underway, planning to deliver another five developments in 2022 and six in 2023.
Landmark also is focused on top-tier markets and has eight developments delivering in August for the 2021–22 school year—from Penn State and the University of Georgia to The University of Texas at Austin. Since the beginning of 2020, it has announced plans for 20 new student housing developments, representing more than 14,000 beds and $3.8 billion.
Wybenga says GMH’s development pipeline is even stronger than he has seen it in the past five years. “We acquire existing assets as well as do new development, but I’m seeing that development piece take an ever-growing stance,” he says.
GMH, based in Newtown Square, Pennsylvania, also is capitalizing on the growing life science sector, opening its first innovative living project, ANOVA uCity Square, in Philadelphia’s “Cellicon Valley” in August. This six-story community from GMH and Wexford Science & Technology features 461 smart apartments, 14,000 square feet of ground-floor retail, a two-level parking garage, and 12,500 square feet of amenity space.
“We are an owner and operator coast to coast, so it’s exciting to be able to launch our new vertical right in our backyard. This is serving that innovation hub workforce, grad and postgrad students, as well as other young professionals,” says Wybenga. “With this hybrid model we are taking the best practices of our student and conventional housing to leverage both sides of the established operating platforms.”
However, while all seems rosy, the sector still faces the same challenges the overall multifamily market is seeing.
“Affordability is one of the biggest challenges,” Rogers says. “In a high-cost environment, doing so at an affordable price is something that we’re increasingly focused on.”
Hales adds that rising payroll costs as well as hiring and retaining talent is a challenge for CA Student Living right now.
“We continue to be very focused on talent management at our properties. Within the overall universe of real estate, student housing is young as an asset class,” he says. “Attracting and retaining top talent that knows how to operate at the site level is now, and will continue to be, a challenge as the asset class continues to grow. At CA Student Living, we are constantly looking at training programs and building leadership from within to fill the talent pipeline.”
Overall, the positives of the sector still outweigh the challenges for the owners and operators in the space.
“Student housing as an asset class has carved out a nice niche in the market,” says Hales. “Investors want to put money to use in our sector as they now understand its resiliency during downturns while seeing the growth prospects move forward. If you look at all the housing options that exist for students to rent, there is still only a small fraction that is truly purpose-built for students. There is room to continue to develop this asset class. We are just getting started, and the best is yet to come.”