Back-to-School: A Student Housing 2024 Focus
This is the fourth in a series of articles discussing the student housing sector. “Analyzing Debt, Equity and Student Housing,” “Student Housing in 2023: Stagnation? Or Continued Investor Interest?” and “Educational Overview: Student Housing vs Multifamily” are live and available to read.
Many articles about student housing forecasts for the 2024-2025 school year are positive, highlighting preleasing and continued enrollment jumps. Connect CRE talked to industry experts to delve behind these articles, focusing on the challenges the sector could face in 2024 and pinpointing forecasts.
Capital Market Challenges
It should come as little surprise that the student housing sector continues to face liquidity and capital challenges, as outlined in a previous article.
Subtext’s Executive Vice President Development Mitchell Korte pointed out that student housing faces similar challenges to the broader commercial real estate market, including interest rates and market volatility.
Andrew Layton, chief acquisition officer with Student Quarters, explained the continued expectation gap between buyer and seller is another challenge. However, “I think that will come together as we get deeper into 2024,” he remarked.
Along those lines, Champion Real Estate Company’s COO and Partner, Parker Champion, said the sector’s buy/sell performance will highly depend on the Federal Reserve’s actions. “If rates drop, activity will increase,” he said.
Colliers’ Senior Vice President Sean Baird also said that debt availability – or lack thereof, as the case might be – might be challenging as the year progresses. However, as student housing continues delivering results and interest rates hopefully calm down, “we expect the capital markets to open up and transaction volumes to increase,” said Baird, who heads up his organization’s National Housing Group.
Furthermore, any potential distress could be offset by continued rent growth. “Even if rates stay elevated, there may be some distress, but rent growth might largely prevent the prevalence of that distress,” Champion noted.
Another possible antidote to any asset distress is student housing’s relatively high rent-collection statistics. Baird pointed out that student leases are guaranteed by parents, which increases the likelihood of steady rent payments. It was also why student housing collections outpaced those of multifamily during the COVID-19 pandemic and shut down, “even with many universities closing their doors to in-person instruction,” Baird said.
Construction Hurdles
Another issue the experts discussed was the supply/demand imbalance. Specifically, there’s plenty of demand. But deliveries continue to lag. “Late deliveries continue to negatively impact the product,” said Brent Little, president of Fountain Residential Partners. “Investors require longer construction timelines and need to increase their diligence around this matter.”
Lack of construction labor is one reason for sluggish deliveries and fewer units. Eric Gould with PMA explained that general contractors struggle to find skilled tradespeople to do the job. “And even when there is contingency or allowances available for schedule acceleration, it’s becoming increasingly difficult to get the labor force to work extra hours or weekends, despite getting paid for premium time,” added Gould, who serves as his company’s Senior Project Manager and Student Housing Expert.
The Future? Look for Continued Strength
When asked about the student housing sector over the next year, the experts offered two words: Stability and growth.
On the stability side, enrollment is at an all-time high, helping drive student housing demand. “Universities need somewhere to put everyone,” Gould observed. “Students paying tens of thousands of dollars for tuition don’t want to live in student-housing complexes built 50 or 60 years ago and falling apart due to deferred maintenance.”
Korte added that despite market volatility and interest rate uncertainty, student housing fundamentals, notably enrollment and supply/demand, mean “the sector will likely continue to outperform most other asset classes.”
This seems to be supported by current metrics, according to information from RealPage. As of January 2024, 49% of beds at the core 175 universities tracked by RealPage are already leased.
Baird added that preleasing for the 2024-2025 school year is off to a record start. “Year-over-year rate increases are exceptionally strong, with some markets topping over 20%,” he added.
However, Student Quarters’ Layton cautioned that there could be a pullback in student housing rent growth. “We’ve had two, really three, consecutive years of robust rent growth,” he said. While he predicted that 2024 would likely continue to exceed the historical norms, “I don’t think you’ll see as many markets being able to pass through double-digit rent growth as they did over the past couple of years,” he said.
Overall, sector strength will likely continue into the next year and beyond. “If you’re an investor, you want a significant portion of your investment in real estate,” Little said, adding that multifamily is one of the best sectors for investment. And within the multi-residential arena, “student housing is the best-performing asset class within the sector,” he pointed out.
Experts believe this particular sector still has legs due to continued fundamentals. The industry has earned further “street cred” with the involvement of high-profile institutional investors like KKR, Blackstone and Angelo Gordon.
Because of this, “I have a lot of stressors in my life,” Student Quarters’ Layton commented. “But I don’t stress much about the performance of my student housing portfolio.”
On April 18, join multihousing’s leaders and dealmakers when they explore the most important topics facing the Phoenix and Scottsdale markets today. Register to attend and hear expert insights first-hand, network with the best in the industry, and sit in on discussions you won’t hear anywhere else. Connect Phoenix Multifamily & Single-Family Build-to-Rent on April 18 at the Westin Kierland Resort & Spa.
