{"id":158785,"date":"2023-09-25T14:24:00","date_gmt":"2023-09-25T20:24:00","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=158785"},"modified":"2024-02-29T17:45:34","modified_gmt":"2024-03-01T00:45:34","slug":"student-housing-remains-as-resilient-as-ever","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/student-housing-remains-as-resilient-as-ever","title":{"rendered":"Student Housing Has Remained Resilient and Profitable\u2014So Should You Invest in It?"},"content":{"rendered":"\n

After the real estate crash in 2008, pretty much any sort of real property became a pariah amongst investors\u2014institutional investors at least\u2014for a few years. However, one of the first sectors to bounce back was student housing. <\/span><\/p>\n\n\n\n

Just one year after the crash (July 2009), Reuters was <\/span>already noting how<\/span><\/a> \u201cinvestors are turning to the student accommodation sector as a would-be phoenix rising from the ashes of the property market, promising growth in returns and size for at least the next few years.\u201d<\/span><\/p>\n\n\n\n

That was for Britain. But <\/span>The New York Times <\/span><\/em>noted<\/span><\/a> that on our side of the pond:<\/span><\/p>\n\n\n\n

\u201cEven through the recession and the housing crisis, student housing development has remained robust, outperforming other sectors, in part because the rising college student population increased the demand for accommodations.\u201d<\/span><\/p>\n\n\n\n

My father started his business in student housing around the University of Oregon, and it\u2019s most certainly <\/span>a very lucrative real estate niche<\/span><\/a>. Universities provide student housing with consistent demand, and due to the nature of college life, you can usually rent properties by the room instead of on the whole, which allows you to charge a premium. (Although, in all honesty, dealing with college students can be a bit of a pain.) <\/span><\/p>\n\n\n\n

Even still, my dad has been quite surprised by just <\/span>how much student housing has been built<\/span><\/a> since 2010 or so in Eugene, Oregon. Many other places have a similar story to tell.<\/span><\/p>\n\n\n\n

The 2023 Student Housing Market<\/span><\/h2>\n\n\n\n

While the real estate market as a whole has remained mostly stable since interest rates started going up last year, that hasn\u2019t been true for every sector. Most notably, <\/span>commercial real estate has struggled<\/span><\/a>\u2014in particular, office space, specifically downtown office space, and with extreme precision, downtown office space in large, urban coastal cities. <\/span><\/p>\n\n\n\n

Retail has also flailed a bit. Industrial and apartments have done okay. <\/span><\/p>\n\n\n\n

But as it was after 2008, student housing has stood out despite the rash of building in the last 10 to 15 years. As <\/span>The Wall Street Journal<\/span><\/em><\/a> points out,<\/span><\/p>\n\n\n\n

\u201cRents for student housing are poised to grow, boosted by limited supply and strong demand at many colleges, especially top research universities and schools in the five highest-earning athletic conferences for U.S. college football.\u201d<\/span><\/p>\n\n\n\n

This is even more interesting because after skyrocketing in the early 2010s, college attendance has\u00a0<\/span>actually been declining since then<\/span><\/a>\u00a0(down from 21 million to 19 million students.)<\/span><\/p>\n\n\n\n

\"\"
Historical College Enrollment (1970-2020) – Education Data Initiative<\/span><\/a><\/em><\/figcaption><\/figure>\n\n\n\n

That being said, the total number of students attending college is not the most important figure when it comes to student housing investing. This is because student housing doesn\u2019t really exist around commuter colleges, i.e., smaller schools, community colleges, schools with part-time programs, for-profit colleges, and the like\u2014in other words, colleges where students don\u2019t tend to live on or very close to campus.<\/span><\/p>\n\n\n\n

And as <\/span>The Wall Street Journal<\/span><\/em> also pointed out, \u201cAlthough college enrollment declined 1.1% last academic year, it increased for universities in the highest-earning athletic conferences and those with well-regarded research programs.\u201d<\/span><\/p>\n\n\n\n

Therefore, the universities where student housing is prominent have generally increased enrollment, and thus, not surprisingly, student housing is outperforming other types of apartments and other sectors of commercial real estate.<\/span><\/p>\n\n\n\n

It\u2019s also interesting just how much activity there\u2019s been in student housing of late. According to Berkadia, in 2022,\u00a0<\/span>sales volume more than doubled in 2021<\/span><\/a>\u00a0and more than quadrupled in 2020. Some of this is just pent-up demand from COVID and the lockdowns. But even still, the $22.8 billion sold in 2022 is more than twice as much as any year in the past 10 (with 2021 and 2018 tying for second at a mere $10.5 billion).\u00a0<\/span><\/p>\n\n\n\n

\"\"
Student Housing Sales Volume (2013-2022) – Berkadia<\/span><\/a><\/em><\/figcaption><\/figure>\n\n\n\n

Of course, it\u2019s unlikely such a trend will continue, and sales should come down in 2023. Still, sales in general should remain quite strong. Cap rates for student housing continued falling even after rates started going up in mid-2022. By year\u2019s end, the average cap rate on student housing apartments was 4.9, 20 basis points lower than at the end of 2021. As <\/span>Berkadia<\/span><\/em> <\/span>sums up<\/span><\/a>, \u201cWe expect this positive trajectory to continue into 2023.\u201d<\/span><\/p>\n\n\n\n

Should You Invest in Student Housing?<\/span><\/h2>\n\n\n\n

Student housing isn\u2019t available in every city, and you need to know what you\u2019re doing to get into it. Again, many colleges don\u2019t really have student housing for the reasons noted. Trying to make student housing happen near one will backfire. And even around colleges that do, novice investors may miss that students only live on one side of campus or won\u2019t consider properties outside a mile from the university or other peculiarities of that particular market.<\/span><\/p>\n\n\n\n

That being said, in a time when high interest rates are making many once-profitable niches far less lucrative than before, student housing stands out. As noted, many commercial sectors, particularly office, have been hammered. And one popular forum thread on BiggerPockets is bluntly titled: <\/span>The BRRRR method is dead<\/span><\/a>.<\/span><\/p>\n\n\n\n

Of course, that is hyperbole. You can still <\/span>BRRRR<\/span><\/a> in this economy. But I would be lying if I were to say it wasn\u2019t much harder than it was a few years ago. <\/span><\/p>\n\n\n\n

Of course, equity deals and flipping are still alive and well. But overall, this market is a challenge, to say the least. <\/span><\/p>\n\n\n\n

Thus, student housing is a market worth considering. It has a long track record, consistent demand, and the potential for higher-than-normal rents, and it\u2019s still going strong in a wobbly and very odd\u00a0<\/span>real estate market<\/span><\/a>.<\/span><\/p>\n\n\n\n \n

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<\/div>\n\n\n <\/div>\n <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"

This type of housing has been a top performer in their markets since before the 2008 recession. They continue to surge today. Should you be investing in them?<\/p>\n","protected":false},"author":1689,"featured_media":158794,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-158785","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-trends"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/158785","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1689"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=158785"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/158785\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/158794"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=158785"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=158785"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=158785"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}