Strong preleasing exceeds pre-pandemic levels

Report highlights:

• The sector’s record-breaking streak carried over to the second quarter of the year, with concerns about falling enrollment rates dissipating.
• The average preleasing rate at Yardi 200 universities reached 87.2% in June, up 10.1% year-over-year.
• Annual rent growth hit 5% in June—an all-time high for the industry.

By mid-summer, the preleasing rate at Yardi 200 universities reached 87.2%, surpassing last year’s numbers and pre-pandemic levels. By comparison, preleasing was up 10.1% since June 2021, while the rate increased 7.7% since the same period in 2019.

The University of California-Santa Barbara, as well as the University of California-Irvine were both fully leased by the end of June and were among the top 5 Yardi 200 universities with highest year-over-year growth in percentage preleased. Oppositely, the University of Southern California (-16.7%) and Middle Tennessee State University (-15.6%) recorded the largest drops in preleasing percentage compared to last year’s figures.

Student housing rent growth still on the up-and-up

Rents at Yardi 200 universities have been gradually increasing through 2022 and in April, the curve of this growth steepened with no signs of an imminent slowdown. By the end of June, annual growth increased to 5%. The record-high rent growth in the sector was supported by the multifamily market’s boom, which experienced a 13.7% increase in rents year-over-year through June.

The average rent per bedroom reached $791 the same month, marking a 0.6% increase since the previous month. Across Yardi 200 universities with at least four properties, 21 registered double-digit rent growth year-over-year, while only four recorded rent decreases. Ohio State University (17.4%) and the University of Nevada-Las Vegas (15.8%) had the highest gains.

New-supply pipeline remains robust

By the end of the second quarter, roughly 135,000 bedrooms were in development at Yardi 200 universities, marking a 4.0% gain quarter-over-quarter. Among these, some 60,000 bedrooms were under construction—up 14.0% since the end of March. During the past 12 months through June, over 30,000 new bedrooms came online at Yardi 200 universities.

Institutions with the most number of bedrooms under construction in mid-2022 included Indiana University-Bloomington (4,713), Florida International University (3,553), University of Washington-Seattle Campus (3,476) and University of Maryland-College Park (3,406).

Student housing investor interest strong

As market fundamentals have remained robust trough 2022, investors continued to show increased interest in the sector. Sales volume at Yardi 200 universities totaled $2.4 billion in the first two quarters of the year, with an average sales price of $69,000 pe bed.

In April, Blackstone entered into an agreement to buy student campus company American Campus Communities, strengthening investor confidence in the sector. The $12.8 billion all-cash deal is expected to close in the third quarter of the year.

Read the full Matrix Student Housing Report-Q3 2022.

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■ The student housing industry continues to display its resiliency during periods of economic uncertainty. Preleasing and rent growth for the fall 2021 term ended on a positive note, and fundamentals continue to look healthy as preleasing for the fall 2022 term is underway. While COVID-19 and the new Omicron variant continue to be a challenge, universities are better equipped to handle mitigating the spread of the virus without much disruption compared to the past couple of years.

■ Preliminary data released by the National Student Clearinghouse Research Center as of October 2021 shows overall postsecondary enrollment for the fall 2021 term was 2.6% below last year’s levels and 5.8% below 2019. However, within these topline numbers, there is a dichotomy between the most selective private and public flagship universities compared to smaller universities and community colleges, which still bodes well for the student housing industry.

■ The Yardi 200 ended the fall 2021 preleasing period in September at 94.3%, up 5.2% from fall 2020 and 0.4% from pre-pandemic fall 2019. Preleasing for the fall 2022 term is already underway, at 26.7% as of November, up from 15.4% compared to the same time the previous year. The average rent per bedroom for Yardi 200 universities was $791 as of December, up 2.2% over the previous year and 0.3% over the previous month. We expect preleasing and rent growth will increase modestly as the spring approaches.

■ Overall, we have a positive outlook for the dedicated off-campus student housing industry leading up to the fall 2022 term, particularly at highly selective universities. Rents and preleasing at Yardi 200 universities are off to a healthy start early in the season, and are above pre-pandemic levels despite economic uncertainty and the lingering COVID-19 virus.

■ Yardi Matrix recently released a new suite of forecasts for the student housing industry, including enrollment, supply, rent and occupancy. Stay tuned for the next student housing report, which will feature additional analysis based on these new forecasts.

Read the full Matrix Student Housing Report-January 2022

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Student housing preleasing for the fall 2021 school year rose to 91.1% in August for the Yardi 200, which includes all Power 5 conferences as well as Carnegie R1 and R2 universities. This is up from 86.4% preleased in 2020 and 90.7% in 2019. Schools saw a surge in applications this year as in-person classes returned, albeit in many cases with vaccination requirements. At least 1,000 universities opened with a requirement for vaccinations for at least some students and employees.

Student housing properties near big-name state schools with competitive acceptance rates generally fared the best, but demand and occupancy rates are strong in most every region and school type. The surge in demand was due in part to the fact that many schools did not require applicants to have SAT or ACT scores due to the 2020-21 school year being disrupted by COVID-19. That led to an increase in applications for more competitive schools, which typically accept a smaller percentage of applicants.

Another favorable trend for student housing is that many state universities have been accepting a greater number of out-of-state students in recent years, according to a report by the Brookings Institute, motivated by the fact that those students pay higher tuition than in-state students. Out-of-state students can’t commute to school so they must rent housing near campus.

Data compiled by Yardi Matrix found that demand for student housing properties was consistent across the board. At 92.4%, Class A properties had the highest 2021 school year prelease rate as of August, but it wasn’t much different than the 91.4% Class C rate or the 89.8% rate for Class B properties.

Student housing distance from campus—another typical distinguishing factor—also yielded little difference in 2021. Prelease rates ranged from a high of 93.6% for properties 0.5 and 0.9 miles from campus to a low of 88.5% for properties 0.25 and 0.49 miles from campus. Students usually prefer to be closer to campus, but with the possibility of classes being held online and some students preferring lower-cost housing, properties farther from campus are seeing healthy absorption in 2021.

Robust demand among the Yardi 200 has produced strong 3.4% year-over-year rent growth, led by 3.6% growth in Class A assets. Class C rents grew 2.8% year-over-year, while Class B rents rose 2.1%.

Preleasing Growth Leaders

Growth in preleasing extended to most large schools across the country. Properties at the University of Nevada-Las Vegas saw the biggest jump, with preleasing for the fall 2021 school year at 98.2% in August, up from 80.9% a year ago. Preleasing at Boise State increased to 94.4% in 2021 from 77.7% in 2020, and that at the University of Texas at San Antonio rose to 95.0% in 2021 from 79.1% in 2020. Properties at the Georgia Institute of Technology, the University of Florida and the University of Arizona all saw large increases in preleasing despite the delivery of more than 1,000 bedrooms at each school.

Schools that saw decreases in preleasing include Miami University of Ohio, Utah State University, the University of Kentucky and the University of Cincinnati. However, the decline in prelease rates at those schools is almost always the result of the troubles at a small number of properties at each location. In other words, most of the properties at those schools were full or nearly full, but the overall rates were dragged down by a handful of poor performers.

The sector continues to face an influx of new supply. Student housing stock nationally increased in 2020 by more than 35,000 bedrooms, or 4.8%, and we forecast that another 35,000 bedrooms will increase total stock by 4.6% in 2021. Texas and Florida continue to lead in the number of bedrooms delivered.

Schools with more than 2,000 bedrooms under construction include The University of Texas at Austin (4,504 bedrooms, or 32.7% of stock), the University of Illinois at Urbana-Champaign (2,863 bedrooms, or 24.9% of stock), Florida International University (2,570 bedrooms, 156.0% of stock), the University of Washington-Seattle Campus (2,037 bedrooms, or 97.9% of stock) and Texas Southern University (2,022 bedrooms, 64.4% of stock).

Student housing property sales have totaled $1.4 billion in 2021 through August, putting the market on pace for its most active year since the transaction peak of $3.4 billion in 2018, according to Yardi Matrix. The sector is attracting significant interest from large institutional investors, including Blackstone Group, Brookfield Properties and TPG Real Estate.

Positive Outlook

The student housing industry faces many questions about impacts on its future over the long term. One is about enrollment. The large Millennial generation is giving way to smaller Gen Z. Will immigration and international student enrollment make up for the smaller cohort?

Other issues relate to the schools and how they operate. Will distance learning and the hybrid education model impact demand the way work-from-home is transforming office jobs? Also being questioned is the value proposition of many majors relative to costs, which could lead to schools eliminating some fields of study. What’s more, there could be shrinkage, as some states are likely to consolidate bloated university systems and some private schools go out of business.

The answers to those questions will play out over time. In the meantime, the sector has solid fundamentals with modest upside for investors, particularly at first-tier institutions. Given the noise in the industry, we foresee an increased emphasis on identifying schools that have long-term enrollment growth potential with balanced new supply.

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As colleges get back to in-person learning this fall, Yardi Matrix reports that the student housing sector is on the rebound.

On Wednesday, the Matrix team, led by Matrix vice president Jeff Alder, presented a webinar on the outlooks and tactics for investors as the student housing realm moves past the pandemic. (View the event recording here.)

“There was a surge in leasing in July and August,” reported Adler. “Rent growth also moved up. The bulk of properties did extremely well. Overall, the sector has validated its business case.”

As colleges and universities announced that they would resume fully in-person classes in the mid to late summer, student housing activity responded in turn.

According to Matrix data, this August preleasing for Yardi 200 universities surpassed pre-pandemic levels at 91.1% preleased, while rent growth also had a significant jump at 3.4% year-over-year. One and two bedrooms led the way for rent increases, and studios, while favored at the height of the pandemic, were not as coveted. Three and four-bedroom suites began to rebound near the end of August.

U.S. colleges are projected to see an enrollment spike in 2021-2022, following an academic year in which some students opted out of attending due to pandemic restrictions, finances and other factors. Thousands of universities did not require SAT or ACT scores this year, driving a surge in applications and subsequently, higher enrollment.

“The bottom line is the schools are open. There may be bumps and problems (with COVID) along the way in terms of the student base. But the schools are opening, housing is happening and beds are getting filled,” Adler summarized. And that’s all good news for student housing.

“Overall, we have a very positive outlook for the student housing industry, particularly at first tier institutions,” state Matrix analysts.

Much of the presentation focused on the tactical components for investing in student housing, which will be a focus for Matrix moving forward. Adler introduced the sector’s forecast reports for supply and enrollment (both currently available) and rent and occupancy (coming soon). According to a poll of attendees on the webinar, 52 percent of respondents stated they are interested in investing in the sector through acquisitions and 48 percent stated they would invest through developing properties.

View the webinar presentation to see all slides and data analysis.

Trendlines that Yardi Matrix will continue to monitor into 2022 include:

• Consolidation of the higher education system
• Value proposition of higher education and value of certain majors from specific universities
• Distance learning and the hybrid education model
• Demographic trends impacting enrollment

Consolidation is expected to be a significant ongoing factor for the industry and reflects the fact that there are fewer Gen Z college attendees than there were in the Millennial generation, Adler explained. States across the country are examining ways to streamline higher education offerings and save overhead costs.

“We do expect that enrollment growth will face headwinds. Gen Z is a smaller cohort (of students) than the Millennials were, hence the consolidation expectation,” Adler said.

Investors interested in the student housing sector may want to focus their efforts on major schools that are likely to withstand or even benefit from consolidation efforts in the industry, he noted. Learn more about student housing and other markets covered by Yardi Matrix.

The post Student Housing Stays the Course appeared first on Yardi Matrix Blog.

■ As the economy opens and vaccines continue to be distributed across the U.S., the outlook for the student housing industry is strengthening. Most universities have announced reopening plans for the fall semester, with many expecting all students on campus and vaccinated.

■ Preleasing for the fall 2021 term is still lagging prior years. As of April, preleasing was at 58.6% for the Yardi 200, about 4.2% below the same time last year and 5.8% below 2019. We anticipate preleasing will continue to improve in the coming months as more students are vaccinated and those who took a year off return to campus this fall.

■ Year-over-year rents for dedicated off-campus student housing properties dipped earlier this year, but have started to tick upward again. Rent growth for the Yardi 200 was 1.2% year-over-year as of April, up from 0.6% year-over-year in March. We expect rents will remain fairly stable or increase modestly, as demand for student housing properties accelerates through the summer.

■ In general, universities in Eastern states have had better preleasing and rent growth, while universities in Western states have struggled a bit more. There is also a noticeable trend in campus settings, as college towns have generally performed better. These universities face less competition from conventional multifamily properties in the shadow market.

■ Overall, we have a positive outlook for the dedicated off-campus student accommodation industry going into the upcoming fall term and beyond. Many factors are pointing to increased student housing demand, fueled by students who took a gap year now enrolling in four-year institutions, new high school graduates, and the gradual return of international students. As the industry begins to approach a sense of pre-pandemic normalcy, a potential headwind to watch will be localized supply-demand imbalances.

Read the full Matrix Student Housing Report 2021-Q2

The post Yardi Matrix Student Housing Report 2021-Q2 appeared first on Yardi Matrix Blog.

Adler remains very positive on the student housing space, even though preleasing is currently behind its usual pace for Fall 2021. “We do expect the 2021 term to have a surge in enrollment and preleasing activity, but it will probably come late, in April and May, as the vaccine situation clarifies,” he said.

That was just one of many insightful takeaways from the presentation. Yardi Matrix produces a quarterly student housing report that summarizes leasing, rent rate, transactions and other trends.

The student housing data set includes over 2,000 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.

Schools that have fared best with housing over the last year have been those that are not urban or in states with strict COVID restrictions in place, Adler said. Overall, national university enrollment is down 2.5% this year from a year ago. Currently, preleasing of student housing for Fall 2021 is trending four percent below where it was last year at this time. Preleasing for Fall 2020 ended up five percent behind 2019 numbers.

“Large, first tier institutions have done the best, and the top performers are those that have been in states and localities that were open for business (throughout COVID),” said Adler.

Universities that have preleasing off to a good start for the upcoming fall term were major public universities in remote areas and some universities near smaller downtowns. That includes schools like Case Western University, the University of New Hampshire-Main Campus and University of Pittsburgh-Pittsburgh campus, which are leading the way as top preleasing performers for Fall 2021. Schools that are falling behind on preleasing include the University of Illinois at Chicago, Brigham Young University and the University of California at Santa Barbara, which are all lagging far from their normal preleasing numbers.

As a result of the pandemic, housing providers are seeing higher demand for studios, single bedrooms and bedrooms with their own personal bathroom, Adler said. “Those without bedroom/bathroom parity are struggling (to lease). This may be an issue that continues, where you would have to have very significant discounts to overcome people’s desire not to share a bathroom.”

The desire for personal space will also impact on-campus student dorms, which may have to rethink double and triple occupancy situations due to parent and student concerns.

“I’m bullish about the whole sector, because dorm capacity just doesn’t work,” Adler said. It also doesn’t seem to matter whether schools are offering fully in-person learning, a hybrid model or all virtual classes. The school simply needs to be open for business in order for student housing demand to remain strong. “Our data showed that they wanted to get out of the house (in 2020) and they did.”

Development trends in student housing reflect what life will look like post-pandemic. High performance Wi-Fi, always a must, has become even more important. Apps that allow students to submit maintenance or service requests are trending, as are outdoor/open spaces where students can gather in person. And touchless features, like keycards for building entry or elevator operation, will be more prevalent.

Development of new student housing stock is primarily focused in the south and southwestern U.S. and has not been deterred by the pandemic.

Investment opportunity in the sector remains strong. Highlights include:

• Global Student Accommodation Group (GSA) made its first venture into the U.S. with the acquisition of a 27-property, 8,000-bed student housing portfolio across 18 states.
• Core Spaces has formed a new joint venture with two undisclosed global investors committed to $1 billion in U.S. student housing acquisitions.
• Global alternative investments firm Arcapita, announced the acquisition of “Clemson Lofts,” a 640-bed property at Clemson University. They also recently purchased a major University of Tennessee student property, “Quarry Trail.”
• CA Student Living bought two student housing properties, located in Georgia and Florida, for a total of 927 beds.

Yardi Matrix’ next webinar presentation will focus on the self storage market and be held on Wednesday, March 24. You can sign up to attend the free self storage overview here.

Student Housing National Outlook – webinar recording

The post Student Housing Slows Down But Overall Sector Outlook Remains Positive appeared first on Yardi Matrix Blog.

• Yardi Matrix recently released our student housing data offering, an industry-leading analytics tool that provides critical insight into the student housing sector.
• Yardi Matrix Student Housing covers key metrics including prelease occupancy, rent by bedroom and by unit, transaction activity, the new supply pipeline, the shadow market, ownership and property management contact information, university profiles and more.
• This report is the first in our quarterly series, covering major trends and developments in the student housing industry. This report will focus on the Yardi 200, which includes all Power 5 conferences as well as Carnegie R1 and R2 universities. Yardi Matrix also hosts biannual student housing webinars. More information on the subscription data offering can be found at YardiMatrix.com.

The COVID-19 pandemic has deeply impacted the global economy and commercial real estate markets, and the student housing industry is no exception. After most universities closed in the spring of last year, school administrators had only a few months to plan for what the 2020 fall term would look like, and most universities implemented some type of online learning.

According to the National Student Clearinghouse Research Center, overall postsecondary enrollment declined 2.5% in fall 2020, and the primary driver of this decline was undergraduate enrollment, which dropped 3.6%. Despite de-densified dorms and a desire for students to return to campus, the purpose-built student housing industry is beginning to feel the effects of the pandemic.

Year-over-year rent growth for the Yardi 200 has steadily declined each month since the shutdowns last March, and rents were down 1.3% in December compared to last year. The fall 2020 preleasing period ended in September at 88.7% for the Yardi 200, about 5.5% below the prior year. While the recent deployment of the COVID-19 vaccine has brought a sense of optimism, there is still some uncertainty as to when the vaccine will be available to the general public. As a result, preleasing for the fall 2021 school year is off to a slow start, at 29.5% preleased as of December.

Though there is some short-term pain in the industry, Yardi Matrix is generally optimistic about the future of the purpose-built student housing industry as the vaccine reaches more people and as students who took a year off return to campus.

Read the full Yardi Matrix Student Housing Report 2021-Q1

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The institution of education is one of the most impacted by COVID-19, as all levels of education were forced to adapt at a moment’s notice when the pandemic hit in early 2020. While living rooms becoming classrooms and parents becoming teachers have grabbed the headlines, higher education has also had to revolutionize its operating procedures in order to survive the pandemic. From limiting class sizes to moving certain instruction online to reducing dormitory capacity, many colleges and universities have scrambled to figure things out for the 2020-2021 academic year. Through it all, the off-campus, purpose-built student housing sector remains fairly strong, especially compared to other commercial real estate asset classes. And while demand has been volatile on a university-by-university basis, the willingness and desire for people to congregate near their school will likely help the student housing sector steer through these uncertain times.

Based on early reports from some universities, enrollment for the 2020-2021 academic year is showing mixed results. Enrollment seems to have increased at public universities and in-state universities but declined at private universities, indicating that students may prefer a more affordable and local school if there is a risk of limited in-person engagement or remote instruction. Undergraduate enrollment is down slightly, but graduate enrollment is up, perhaps a result of job losses encouraging professionals to further their education.

Read the full Matrix Student Housing Bulletin-October 2020

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