Preleasing of student housing in 2021 has rebounded to pre-pandemic levels, after a drop-off in 2020 that turned out not nearly as bad as expected.
Student housing preleasing for the fall 2021 school year rose to 91.1% in August for the Yardi 200, which includes all Power 5 conferences as well as Carnegie R1 and R2 universities. This is up from 86.4% preleased in 2020 and 90.7% in 2019. Schools saw a surge in applications this year as in-person classes returned, albeit in many cases with vaccination requirements. At least 1,000 universities opened with a requirement for vaccinations for at least some students and employees.
Student housing properties near big-name state schools with competitive acceptance rates generally fared the best, but demand and occupancy rates are strong in most every region and school type. The surge in demand was due in part to the fact that many schools did not require applicants to have SAT or ACT scores due to the 2020-21 school year being disrupted by COVID-19. That led to an increase in applications for more competitive schools, which typically accept a smaller percentage of applicants.
Another favorable trend for student housing is that many state universities have been accepting a greater number of out-of-state students in recent years, according to a report by the Brookings Institute, motivated by the fact that those students pay higher tuition than in-state students. Out-of-state students can’t commute to school so they must rent housing near campus.
Data compiled by Yardi Matrix found that demand for student housing properties was consistent across the board. At 92.4%, Class A properties had the highest 2021 school year prelease rate as of August, but it wasn’t much different than the 91.4% Class C rate or the 89.8% rate for Class B properties.
Student housing distance from campus—another typical distinguishing factor—also yielded little difference in 2021. Prelease rates ranged from a high of 93.6% for properties 0.5 and 0.9 miles from campus to a low of 88.5% for properties 0.25 and 0.49 miles from campus. Students usually prefer to be closer to campus, but with the possibility of classes being held online and some students preferring lower-cost housing, properties farther from campus are seeing healthy absorption in 2021.
Robust demand among the Yardi 200 has produced strong 3.4% year-over-year rent growth, led by 3.6% growth in Class A assets. Class C rents grew 2.8% year-over-year, while Class B rents rose 2.1%.
Preleasing Growth Leaders
Growth in preleasing extended to most large schools across the country. Properties at the University of Nevada-Las Vegas saw the biggest jump, with preleasing for the fall 2021 school year at 98.2% in August, up from 80.9% a year ago. Preleasing at Boise State increased to 94.4% in 2021 from 77.7% in 2020, and that at the University of Texas at San Antonio rose to 95.0% in 2021 from 79.1% in 2020. Properties at the Georgia Institute of Technology, the University of Florida and the University of Arizona all saw large increases in preleasing despite the delivery of more than 1,000 bedrooms at each school.
Schools that saw decreases in preleasing include Miami University of Ohio, Utah State University, the University of Kentucky and the University of Cincinnati. However, the decline in prelease rates at those schools is almost always the result of the troubles at a small number of properties at each location. In other words, most of the properties at those schools were full or nearly full, but the overall rates were dragged down by a handful of poor performers.
The sector continues to face an influx of new supply. Student housing stock nationally increased in 2020 by more than 35,000 bedrooms, or 4.8%, and we forecast that another 35,000 bedrooms will increase total stock by 4.6% in 2021. Texas and Florida continue to lead in the number of bedrooms delivered.
Schools with more than 2,000 bedrooms under construction include The University of Texas at Austin (4,504 bedrooms, or 32.7% of stock), the University of Illinois at Urbana-Champaign (2,863 bedrooms, or 24.9% of stock), Florida International University (2,570 bedrooms, 156.0% of stock), the University of Washington-Seattle Campus (2,037 bedrooms, or 97.9% of stock) and Texas Southern University (2,022 bedrooms, 64.4% of stock).
Student housing property sales have totaled $1.4 billion in 2021 through August, putting the market on pace for its most active year since the transaction peak of $3.4 billion in 2018, according to Yardi Matrix. The sector is attracting significant interest from large institutional investors, including Blackstone Group, Brookfield Properties and TPG Real Estate.
The student housing industry faces many questions about impacts on its future over the long term. One is about enrollment. The large Millennial generation is giving way to smaller Gen Z. Will immigration and international student enrollment make up for the smaller cohort?
Other issues relate to the schools and how they operate. Will distance learning and the hybrid education model impact demand the way work-from-home is transforming office jobs? Also being questioned is the value proposition of many majors relative to costs, which could lead to schools eliminating some fields of study. What’s more, there could be shrinkage, as some states are likely to consolidate bloated university systems and some private schools go out of business.
The answers to those questions will play out over time. In the meantime, the sector has solid fundamentals with modest upside for investors, particularly at first-tier institutions. Given the noise in the industry, we foresee an increased emphasis on identifying schools that have long-term enrollment growth potential with balanced new supply.