Market News

This past year, the pandemic has created a significant level of uncertainty in a wide variety of industries, especially commercial real estate, including factors that are clouding the student housing outlook such as whether students will come back to campus or relocate due to online learning, if, or when, they will sign a new lease, and if they will require future “outs” or reimbursement provisions should they need to change occupancy plans in the future due to pandemic-related issues.

Demographics

While college enrollment has increased 29% since 2000, it is projected to grow only 2% by 2029. Although college enrollment numbers for fall 2020 remained largely unchanged, a completely remote semester or big decline in foreign students shifted things dramatically. Since January of 2020, more than 20% of students changed their first-choice school toward more in-state public institutions and schools closer to home.

Foreign students accounted for 5.5% of the U.S. higher education population in 2019, making this a key demographic for student housing in certain markets, and the abrupt drop in foreign student enrollment is expected to significantly impact higher education in the U.S.

According to The College Board, 40% of full-time students at public universities live on campus, 40% live in off-campus housing and 20% live with their parents. At private universities, 64% of full-time students live on campus, 19% live in off-campus housing and 17% live with their parents.

In this environment, it is expected that student housing located near the largest public universities and college towns will outperform those in big cities where population density and social distancing have been the most challenging.

De-Densify Dorms

Considering the large number of universities implementing online-learning, it raises the question of whether students will be willing to pay for accommodations for the academic year. Colleges continue to plan ways to safely reopen, how to navigate virtual education, and if it’s possible to ask students to return to campus in shifts by rotating the student population by semester.

During the 2020 pandemic, schools were compelled to make campus housing less dense, with fewer roommates, more single dorm rooms, and residential space for quarantining. It is predicted that the continued combination of limited capacity in existing dorms combined with a healthy desire for an on-campus experience will likely drive increased demand for off-campus housing in the near-term.

Tracking Key Amenity Trends

One of the shifts taking place in the student housing sector is the fact that typical college dorms are quickly fading away as the need for more private space and connectivity become crucial. Perhaps the most important amenity in a student housing asset continues to be the Internet. Today, the students demand “really fast” Internet connections to support the ever-increasing usage of streaming services, digital fitness and online classes.

Other amenities students now seek include keyless room entry, key fobs with built-in contact tracing technology, pedestrian- and bike-friendly spaces, as well as larger ridesharing space and less parking availability due to the rise in popularity of Uber and Lyft.

Long-Term Asset Class Stability

College and university reopening plans for the fall of 2021 have revived investor interest in the student housing asset class. That is giving them more certainty about cash flows for the year. Winners will likely be properties with some type of social distancing built in such as their own bathrooms, single occupant rooms, etc.