The state of student housing

As students left for the 2020 spring break, U.S. colleges and universities scrambled to put online learning in place amid the COVID-19 pandemic. Five months later, with no national guidelines for return to campus, schools initiated a wide range of back to school plans. According to the College Crisis Initiative, a research project at Davidson College in North Carolina, approximately 65 percent of the 2,958 schools in the study planned an online or hybrid approach for the new school year, while 27 percent planned a primarily in-person approach. However, some in-person plans resulted in a rocky August as COVID-19 outbreaks caused some schools to immediately send students back home and others to alter their remote learning plans. For example, UNC-Chapel Hill quickly reversed initial policies, moving the campus to fully remote learning after 177 cases were reported in the first week of school. Michigan State University also reversed decisions at the last minute, opting for online instruction out of precaution.

Hybrid learning prevails

An analysis of 175 large colleges and universities tracked by RealPage found that while some campuses opted for an online-only approach, most adopted a hybrid model of both in-person and virtual education. However, students were not deterred from returning to campus. At the end of the pre-leasing period in August, 88.3 percent of beds at the core universities tracked by RealPage were pre-leased for the fall as compared to just 91.7 percent a year ago. 

In addition to students returning to campus, many student housing properties may be benefiting from dedensification of university-owned properties as a result of the pandemic. On-campus housing capacity is expected to be operating at approximately 82.5 percent of the previous term, according to an August survey from the Association of College and University Housing Officers. Additionally, 79 percent of on-campus housing officers indicated that their institutions were planning on keeping an existing on-campus housing facility offline for a potential quarantine space during the 2020–21 academic year, further limiting on-campus housing space. As a result, many students are turning to off-campus student housing as a better and safer alternative. As compared to the traditional shared “dormitory-style” bathrooms, modern student housing properties also provide better bed-to-bath parity, further lessening contagion risk during the pandemic. This de-densification of on-campus housing will likely help to offset any enrollment declines at schools and allow the off-campus student housing market to remain highly occupied. American Campus Communities (ACC) CEO, Bill Bayless, stated, “When the universities in March and April panicked and told students to leave the on-campus residence halls of that older quality, we actually, in the middle of an academic year, picked up a thousand new residents…And so the modernization of student housing really helped the university.”

The Southeast and Midwest go back to school

In the near-term, occupancy is heavily impacted in the fall of 2020 by re-opening plans as a response to the COVID-19 pandemic. Schools with over 95 percent of beds leased are concentrated in markets that were among the first to announce a return to on-campus learning. The Southeast and Midwest lead the pack, particularly flagship state schools in Mississippi, Indiana, Wisconsin, Georgia, Maryland, North Carolina, South Carolina, and Virginia. Conversely, online learning remains significant in the coastal markets. Several of these schools, particularly in California are less than 80 percent leased.

However, at the national level, student housing rent collections remained relatively high throughout the summer; rent collections as of June 13th averaged 92 percent, outpacing conventional multifamily collections reported at 89 percent. However, vacancies by bed are projected to rise 210 basis points from 5.2 percent to 7.3 percent in 2020, while vacancies by unit rise 80 basis points from 2.3 percent to 3.1 percent, indicating some de-densification in student housing properties as well. Near-term rising vacancy rates and questionable occupancy due to the pandemic even if the space is rented, particularly in the coastal markets where online learning continues to dominate, are expected to weaken rental growth for the 2020 school year. Rent declines are expected to be universal across every U.S. region, but will take the steepest dive in the Southwest, where rents are projected to fall by 7.1 percent as compared to 4.4 percent in the Northeast.

Despite increased demand for student housing, new supply is slowing. Prior to the pandemic, the number of student housing beds was expected to increase by 4 percent (1.7 percent unit growth) in the 2020-21 school year. Since then, a number of projects have been delayed or halted entirely due to market uncertainty. Thus, inventory growth is projected to be more moderate at 2.8 percent for properties by bed and 0.8 percent for properties by unit, although this is still up from the 0.4 percent and 0.6 percent increases in the past two school years.

The student housing sales market also started the year strong with $1.7 billion in Q1 transactions, a pace that was 13.3 percent higher than a year ago. However, the transaction market has since been virtually at a standstill outside of a handful of assets that had started trading pre-pandemic. Over the longer-term, the slowdown in new completions will help to boost occupancy. As the pandemic wanes and investors have a view of how the market performed in 2020 with large online educational formats, investor confidence is expected to return.

Long-term positive effect anticipated

Longer-term, the pandemic may have a positive impact on the student housing market as real estate in general will be expected to play a larger part in public health policy. Purpose-owned student housing already provides better bed-bath parity ratios than either on campus or non-institutionally owned properties, and institutional owners will be able to further integrate policies and building materials to support student health while reduced tax revenues as a result of the recession will slow university funding, and thus new university owned construction. With more than half of the student housing market still not institutionally owned, purpose-built buildings that better support the health and safety of students may also increase market share of off-campus housing.

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Sources

https://collegecrisis.shinyapps.io/dashboard/
“Swab, spit, stay home? College coronavirus testing plans are all over the map,” Michael Mcauliff, The Charlotte Observer, August 25, 2020.
“Student Housing Pre-Lease Season Ends Just Below Last Year’s Results,” Julia Bunch, RealPage, September 11, 2020.
COVID-19 Response Survey #6 Results, ACUHO-I, July 28 2020 survey
“Student Housing State of the Market,” CBRE Roundtable, June 25, 2020.
“COVID Is Accelerating a Revolution in Student Housing,” Les Shaver, GlobeSt, September 22, 2020
“Strongest Student Housing Leasing in Southeast, Midwest as West Falters,” Julia Bunch, RealPage, October 9, 2020.
Berkadia’s June 2020 Student Housing Collections Survey
Apartment data from The National Multifamily Housing Counsel June Rent Payment Tracker for Conventional Multifamily. Note that the NMHC tracker includes full or partial payment and the Berkadia survey is based on an actual percentage of scheduled rents so the 3 percent better performance for student housing is likely understated.
“Q2 2020: Student Housing Quarterly View,” Keegan Kelly, Moody’s Analytics, August 27, 2020.
“Student Housing State of the Market,” CBRE Roundtable, June 25, 2020.