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Chapter 08: Student Housing
U.S. Commercial Real Estate
Investing Outlook
4 minute read

Student Housing Outlook

Outlook Summary

The student housing sector has rebounded since the pandemic, with strong occupancy rates and rent growth reported by Yardi Matrix.59Pre-leasing, although strong for Fall 2024, has slightly slowed yearly, partly due to FAFSA processing delays.59 Despite generally high financing and development costs today, there has been consistent demand for on-campus housing, and nearly 10% rent growth is predicted for the 2024-2025 academic year.61 Transaction activity has decreased partly due to high interest rates, but institutional interest in student housing continues, particularly in major markets with state-supported colleges.62 Notable transactions, such as KKR's acquisition from Blackstone, highlight the sector's enduring appeal.65

Figure 13: Student Housing Pre-Leasing by Year
Figure 13-Outlook H2
Source: National Student Housing Report, Yardi Matrix, June 2024.

 

Market Fundamentals

As per Real Page, the student housing sector has rebounded significantly since major pandemic restrictions were lifted in 2022, reaching a high of 96.5% occupancy in Fall 2022, with a minor decrease to 95.0% in Fall 2023.58 By June 2024 (roughly two months before the pre-lease season officially ends), approximately 84.5% of beds at the core 175 universities tracked by RealPage had been leased for Fall 2024, slightly down from 85.8% the previous year.58 According to Yardi Matrix, delays in FAFSA processing may be slowing preleasing, especially at schools relying on incoming freshmen for summer occupancy.59

Yardi Matrix reports that although rent growth in the student housing sector moderated to 5.3% in May, down from 6.8% earlier in the leasing season, the average rent per bed climbed to a record $897 in June 2024, up 5.3% from the previous year. Yardi Matrix shows that rent growth for the sector remains relatively strong compared to historical trends, which stands out, especially in today’s market, where many CRE asset classes are experiencing soft rent growth.59 For example, according to Yardi Matrix, the student housing rent growth, at an average of 6% this leasing season, substantially exceeds the 0.6% multifamily average in 2024.59

Many colleges and universities struggle to meet the demand for on-campus housing, largely due to high financing and development costs.60 According to Student Housing Business.com, despite a drop in new Student Housing development, demand remains strong, with predictions of nearly 10% rent growth for the 2024-2025 academic year.61

Although we expect supply concerns and demand for student housing to keep demand alive for future developments, developing student housing projects is generally challenging today. Walker & Dunlop forecasts a dip in new supply deliveries by 2025-2026.62 Ensuring student housing projects are completed on time is crucial, as any delays can lead to financial setbacks if they are not delivered before the start of the planned semester, which adds to the complexities of development projects today.

Figure 14: Student Housing Annual Rent Growth
Figure 14 -Outlook H2
Source: National Student Housing Report, Yardi Matrix, June 2024.

 

Transaction Activity

Despite strong market fundamentals, the student housing sector is not insulated from today's high interest rates, slowing transaction activity. According to Walker & Dunlop, the sector’s transactions peaked in 2022, especially after Blackstone's $13 billion acquisition of American Campus Communities.63 However, since that high point, Walker & Dunlop reports that transaction volume has decreased annually by around 71% in 2023 (roughly half of 2022 volume, excluding BlackStone’s acquisition).62

Considering today’s market with generally strict lending criteria, one distinction of student housing in our observation is the predictability of rent rolls for an entire year due to pre-leasing, offering more insights for underwriting than, for example, multifamily, which can generally make it less risky for lenders.

According to Student Housing Business.com, although traditional banks have reduced financing options, there is institutional interest in student housing, primarily focused on major markets with powerful, state-supported colleges and universities experiencing soaring enrollment.64 Significant investor activity, evidenced by the recent high-profile student housing portfolio acquisition of KKR from Blackstone for $1.64 billion, suggests recent interest in student housing.65

Figure 15: Student Housing Sales Volume by Year
Figure 15 - Outlook H2
Source: Berkadia, MSCI Real Capital Analytics, as of February 2024.

 

CrowdStreet’s Strategy
Location and Proximity Matters

The opportunity in the student housing sector is dichotomous, and location will play a key role in choosing the suitable opportunity. We will consider deals located near highly competitive Tier 1 or Tier 2 flagship universities that are well-capitalized and backed by large endowments. We expect these campuses will leverage their competitive advantage to draw students, potentially propelling the neighboring student housing market in these areas, leaving the student housing near institutions and community colleges struggling with dwindling enrollment at a disadvantage. We will generally consider student housing deals in markets showing strong rent growth, particularly around large primary state schools and within growing populations within the Sun Belt states. 

Although we expect strong market fundamentals to support transaction activity for student housing, we will consider projects based on local market dynamics, such as supply and demand, more so than broader industry trends. Markets with higher projected rent growth may be positioned to offset today's high interest rate expenses and their impact on NOI.

 

Development, although Challenging

Historically, our student housing deal flow has primarily concentrated on development projects rather than acquisitions. Consequently, we have seen fewer deals lately as developers and sponsors face challenges in construction pipelines due to high construction costs, labor, debt, and difficulties securing loans.

We will generally consider deals in areas experiencing a shortage of housing and student accommodation, focusing on markets where the projected supply of student housing aligns with current and projected demand, particularly in submarkets with strong enrollment. With an expected surge of new beds in 2024 according to Globe Street57, we will seek development opportunities, especially in underserved markets, avoiding markets with inflated development pipelines.

A prospective student housing development deal would be for properties backed by established sponsorship, looking to capitalize on areas with significant enrollment rates and strong market fundamentals.

 

 
  1. “Student Housing Occupancy Soars,” GlobeSt.com, October 2023. 
  2. “September's Final Student Housing Occupancy Reading Clears 95%,” Real Page, October 2023. 
  3. “Student Housing Market Report – July 2024,” Yardi Matrix, July 2024. 
  4. “No Room At The Dorm: As College Begins, Some Students Are Scrambling For Housing,” Forbes, August 2023.
  5. “Strong Rent Growth, Stabilizing Interest Rates Could Mean More Transactions in 2024,” Student Housing Business, February 2024. 
  6. “Student Housing Outlook 2024,” Walker & Dunlop, 2024. 
  7. “KKR Reaches Billion-Dollar Deal for Blackstone Student-Housing Portfolio,” CoStar, April 2024.
  8. “Despite Market Challenges, Student Housing Financing Surges Ahead,” Student Housing Business, May 2024. 
  9. “KKR to Acquire $1.64 Billion Student Housing Portfolio from BREIT,” KKR, April 2024. 

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This article was written by an employee of CrowdStreet Advisors and the contents of this publication are for informational purposes only. Neither this publication nor the financial professionals who authored it are rendering financial, legal, tax or other professional advice or opinions on specific facts or matters, nor does the distribution of this publication to any person constitute an offer, recommendation, or solicitation to buy or sell any security or investment product issued by CrowdStreet Advisors, its affiliates, or otherwise. The views and statements expressed are based upon the opinions of CrowdStreet Advisors. All information is from sources believed to be reliable. This article is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance or success. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. CrowdStreet Advisors assumes no liability in connection with the use of this publication.

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