The Resilience of Student Housing: A Bright Spot in Commercial Real Estate

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Episode Transcript:

Today, we shine a spotlight on a rare bright spot in the industry: student housing. While many office buildings sit empty and apartment-rent growth slows, student housing emerges as a resilient sector with promising growth potential.

Rents for student housing are on the rise, driven by limited supply and strong demand, particularly at top research universities and schools in the highest-earning athletic conferences. Despite the overall decline in college enrollment, student housing remains a sought-after asset class, although smaller colleges with falling enrollment face higher risks.

In 2022, sales of student housing properties reached a record high of $22.9 billion, a testament to the enduring appeal of this sector. Real estate investment giant Blackstone made a significant investment of $12.8 billion in American Campus Communities, recognizing the long-term potential of student housing.

One of the unique characteristics of student housing is its resilience during economic downturns. It is an "all-weather asset class," as more people tend to pursue higher education during challenging times. Moreover, higher interest rates and limited financing options for developers result in limited new supply, allowing landlords to continue raising rents.

Even during the pandemic, student housing proved its durability. Despite the shift to online classes, occupancy remained stable as students sought independence and proximity to their college campuses. The return to in-person learning and the rising demand for student housing have fueled a rebound in rents, supporting the record sales in 2022.

While student housing values have seen a decline due to higher borrowing costs, the impact has been less severe compared to other property types. Rent growth and strong occupancy rates have mitigated the decrease, positioning student housing as a standout performer in the market.

However, not all segments of the student housing market are thriving. Developments near smaller or lesser-known institutions are experiencing weak demand due to declining enrollment. It's clear that there's a dichotomy in the enrollment story, with universities in prestigious athletic conferences and those with renowned research programs faring better.

Amidst these dynamics, distressed student housing investments have emerged, particularly older properties in need of maintenance and upgrades. But overall, investor optimism remains high, with student housing preleasing rates for the upcoming fall semester at around 70%, on par with pre-pandemic levels.

As we navigate the ever-changing landscape of commercial real estate, it's fascinating to witness the resilience and unique dynamics of the student housing sector. With limited supply, strong demand, and a proven track record, student housing stands out as a compelling investment opportunity in the broader real estate market.

This is Tyler Cauble, Signing off