Strong fundamentals fuel student housing sector’s momentum

Asking rents and leasing activity hit new peaks in March

Student housing remains a fundamentally niche market, but while other commercial property types have encountered rough waters amid the choppy U.S. economy, the student housing sector continues to gain steam, according to Yardi Matrix.

Rent growth for student housing saw large gains during the first quarter of 2023. From January through March, rents increased by 7% year over year at the top 200 investment-grade universities across all major collegiate conferences — a pace that Yardi called “a remarkable high.” Average asking rents in student housing have now grown each month since September 2022 to reach $829 for the upcoming 2023 school year as of March. That’s up $2 from February to also reach a new record high.

Rents are highest in college cities that already have pricey multifamily markets. Average monthly rents exceeded $2,000 at three coastal California schools: the University of California at Berkeley, the University of Southern California and the University of California at Santa Barbara.

Meanwhile, leasing activity remains strong, with 69.7% of beds across these 200 schools leased for the upcoming school year. That’s another new high and well above the previous peak of 61.9% set one year ago. Six universities were fully preleased by March, although most of them had a limited stock of dedicated off-campus student housing.

While demand and rents are robust, there is evidence that transaction volume is cooling. Certainly, figures are set to drop following last year’s record volume of student housing investment. The first quarter of 2023 closed with $148.1 million in sales spread across four schools: the University of Oregon, the University of South Carolina, Texas State University and the University of Texas Rio Grande Valley. This figure should rise as more information on first-quarter transactions comes to light, but deal volume remained significantly behind the $1.5 billion in sales for the first three months of 2022.

Higher interest rates and tighter credit standards are already being felt within student housing capital markets, Yardi noted, but student housing is comparably sound for investors relative to other commercial real estate asset classes. With sectors such as office experiencing disproportionate amounts of stress, the student housing niche may attract more focus as the country continues to navigate turbulent economic conditions.


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