Student Housing Update

From Yardi Matrix

By Leah Etling on Nov 25, 2024 in Matrix

The student housing market is showing promising signs as it heads into the very early days of a new leasing season. Despite some challenges, the outlook remains positive, according to the latest webinar on the sector from Yardi Matrix. (View recording and other materials here.) Student housing continues to see solid demand and a few market adjustments should benefit the sector in the medium term.

Yardi Matrix tracks the performance of 1.15 million student housing beds at over 2500 U.S. universities to analyze the performance of the student housing market. Let’s dive into some of the key points shared by Tyson Huebner, Director of Research for Yardi Matrix, which explore current state of the student housing market and actionable investment insights.

Rent Growth Trends

Huebner kicked off the discussion with an optimistic view of the student housing sector, driven by early enrollment data from around half of the Yardi 200 markets. While student housing occupancy has dipped slightly from last year’s 95.4 percent to 93.9 percent, it still reflects strong demand, especially when compared to the pre-pandemic occupancy levels of 96.1 percent. The decrease in occupancy is attributed to a few underperforming markets, but overall, the demand remains robust.

Rent growth in the student housing sector has moderated slightly but still averaged a healthy 6% during the leasing season, down from the previous year. This deceleration is partly due to the slower growth in the broader multifamily sector, which has influenced student housing. However, there are still several markets showing exceptional rent growth, highlighting the importance of understanding local market dynamics.

As with any cyclical industry, volatility remains a key characteristic of the student housing market. Huebner emphasized the importance of diversifying portfolios, as some markets that were previously underperforming have seen a dramatic turnaround, showcasing the unpredictable nature of supply and demand. The key takeaway here is that market data and deep local knowledge are essential for successful investments in this sector.

Insights and Investment Opportunities

Looking ahead, Huebner shared several promising investment themes that continue to hold strong:

1. Declining New Deliveries: One factor contributing to the favorable outlook is the reduction in new student housing deliveries, which should help balance supply and demand in the coming years.
2. Diversified Markets: Of the 200 markets tracked, 41 reached 99% occupancy or higher, and 35 saw double-digit rent growth. At the same time, 22 markets had occupancy rates below 85%, and 23 markets experienced rent declines. This highlights the sector’s inherent volatility and the importance of market selection.
3. Overlooked Opportunities: There are still many opportunities in overlooked markets, especially at secondary and tertiary schools that may be under-supplied. Huebner pointed out several key areas for investment, including:
4. 15 primary state schools with no new supply
5. 34 schools with less than 35% of total enrollment housed in student housing
6. 45 schools that have seen significant recent enrollment growth (over 2,000 students)

“This sector, even though it’s 20 years old, has been growing. There’s still a lot of growth left in it, not only on the acquisition of getting the on the acquisition side, but in the development business,” said Jeff Adler, vice president of Yardi Matrix.

Despite some challenges, there are numerous high-performing markets and overlooked opportunities for investors who understand the volatility and dynamics at play. By leveraging market data and diversifying portfolios, student housing investors can continue to capitalize on the sector’s strengths and navigate its challenges. Yardi Matrix data can help. Learn more here.