Despite the fears and turmoil associated with the student housing sector in the wake of COVID-19—especially as universities waver on in-person instruction—Yardi Matrix data for the summer and fall indicates that student housing sector performance has remained “resilient” and not heavily affected by university decisions. Instead, it is more heavily affected by supply and demand fundamentals, including overall enrollment on the macro level, according to the Yardi Matrix Student Housing Industry Outlook for fall 2020.
What Happened This Fall?
In the spring, Yardi Matrix held several presumptions about the student housing industry’s trajectory. As of September, here is how each of these predictions has panned out:
1. COVID-19 would slow projects in early stages of development.
Over the course of 2020, cycle times have not displayed any significant pattern of slowdown. In addition, out of Yardi’s entire database of student housing projects in development, only two have been canceled since the start of the pandemic.
2. Domestic and international enrollment would likely fall.
Early enrollment indications are mixed, but major public four-year universities have seen an increase in enrollment, while private universities have seen a decrease. Undergraduate enrollment has fallen overall, driven mostly by 10% to 20% of incoming freshmen choosing to defer their enrollment for one year, and graduate enrollment has risen, owing to job losses. In-state enrollment is on the rise, and minority students make up a greater share of enrollment than before.
Many universities have seen a rise in deferments for first-year students and a fall in international enrollments. American Campus Communities reports that, as of Sept. 11, occupancy at properties that largely house freshmen was about 80%, while occupancy at properties that house upperclassmen was about 93%.
3. Incoming students would look at schools closer to home.
A number of four-year public schools has announced record or near-record enrollment levels, as well as a spike in enrollment from in-state undergraduates. For example, at The University of North Carolina at Charlotte, more than 6,200 of the 6,600 incoming freshmen are from North Carolina.
4. Dorm capacity would be cut in half, fueling demand for off-campus student housing.
Yardi’s stance is that the industry “dodged a bullet” in terms of the pandemic’s effects on off-campus student housing. The pre-leasing rate was 87.6% in August, 3% lower than the rate at the same time in 2019, and year-over-year rent growth was 2.1% in September, down 0.6% from 2019.
5. The student housing market at universities going online for the semester would be hit, “but not too hard.”
While most universities chose to hold some kind of in-person instruction for the fall 2020 semesters, a number of them later decided to move classes fully online, or to halt in-person instruction in the face of rising COVID-19 cases.
Surprisingly, out of 70 universities in a Yardi analysis that pivoted to online instruction, 16 have dedicated off-campus student housing preleasing rates of over 2% more than at the same time last year, ranging from 3.2% to 10.7%. Fifteen have pre-leasing rates within 2% of last year’s rate, and 38 have pre-leasing rates of less than 2% of last year’s rates, ranging from -2.2% to -43.1%. (Yardi Matrix vice president Jeff Adler notes that the -43.1% rate is a significant outlier.)
Overall, Adler concludes that the COVID-19 pandemic does not seem to have affected new development; enrollment trends have shifted, with a rise in graduate enrollment, a drop in undergraduate enrollment, and a rise in in-state and minority enrollments; and pre-leasing and rent growth are muted but steady. Adler also points out a number of common factors between very few schools that have been able to resume in-person classes while keeping COVID-19 cases low: low community spread, a comprehensive contract tracing and testing program (often very expensive), and/or status as a community college with no on-campus housing or athletics.
Winners and Losers
Of the schools that have elected to hold in-person instruction, off-campus housing near the University of Georgia has had the highest rate of pre-leasing as of August at 96.6%, unchanged from one year ago, followed by Texas Tech University at 96.3%, up 3.8% from August 2019. Texas A & M University-Kingsville had the highest increase in pre-leasing, up 7.7% to 89.5%, while Texas Tech University had the second highest. (The full chart is available at Yardi Matrix.)
At the property level, Vie Lofts at Texas State University had the strongest improvement in pre-leasing from August 2019 to August 2020, up 36.3% to 89.6%. 100 Midtown at 10th Street at Georgia Institute of Technology-Main Campus is in second, up 34.7% to 100%, followed by University Village at Muncie at Ball State University, up 29.9% to 100%.
Adler attributes Texas Tech’s performance to its strong enrollment growth—22% over the past decade. Ball State University, another top performer, has had no increase in dedicated student housing inventory over the past five years, but a 6% increase in enrollment over the same period.
On the opposite end, the University of Memphis has had both the lowest level of pre-leasing at 48.7% and the sharpest drop in pre-leasing at -30.1%. The school is a large outlier; Adler attributes this drop to a decline in freshman enrollment combined with a 55.8% increase in dedicated student housing inventory over the past five years. The Vista West and The Vista East at Boise State University are the lowest performing properties, with a -73.8% and -73.2% drop in pre-leasing, respectively.
Of the schools that have elected to hold online instruction, all of the schools in the top 10 for off-campus housing pre-leasing have seen their rates rise to 100%—including Columbia University, Carnegie Mellon, and the University of California at Irvine, LA, and Santa Barbara. University of California-Irvine has seen the largest pre-leasing increase from August 2019 to August 2020 at 10.7%, followed by the University of New Hampshire-Main Campus at 9.4%.
Among the top performers, the University of Kentucky has had no increase in dedicated student housing in the last five years, and Johns Hopkins University has seen enrollment rise 29.1% over the last 10 years. Trifecta at the University of Louisville has seen the highest pre-leasing growth among student housing properties at online universities at 38.4%, followed by 101 Center at The University of Texas at Arlington at 35%.
Rutgers University-New Brunswick has had the sharpest drop in student housing pre-leasing YOY for online universities at -43.1%, followed by Brown University at -35%. The Parsonage at University of Washington-Seattle Campus had the sharpest drop in pre-leasing at the property level at -49.8%, followed by SoCam 290 at Rutgers at -43.1%.
Why are students continuing to lease off-campus housing if their colleges or universities have gone all online? According to Adler, as long as the university is open in some capacity, college students will want to live nearby. “College students don’t want to live at home if they can possibly prevent it,” Adler says. “Especially that population that is accessing the upper end of that dedicated student housing market, they have the means to not live at home, and the parents seem to be amenable. Will it call into question the entire value proposition of the university, which quite frankly has become a luxury good? ... I think there will be a potential day of reckoning. This will probably begin a reevaluation of the value of education and the sticker price associated with that.”
Based on pre-leasing data for individual universities, Yardi has concluded that the status of instruction at a university—including campus closures—has had limited effects on off-campus housing demand in the area. Instead, the "success" or "failure" of a given set of student housing has depended on the supply and demand metrics of a given university.
Looking ahead to the spring, while COVID-19 conditions remain unpredictable, a number of universities are already taking action on plans for the spring semester: California State University has announced online instruction for the spring semester, and a number of schools are canceling or shortening spring break. Based on fall data, Yardi believes that as long as schools remain open—online or in person—enrollment and supply balance is the best indicator of property performance.
