Over the course of the past six months, the student housing industry has grappled with a variety of challenges. For colleges and universities, the largest hurdle heading into the fall semester was deciding the safest route to take for re-opening campus. This included decisions on everything from whether or not in-person learning would be allowed, to whether students would be welcomed back into residence halls at normal volumes. These questions was deliberated over throughout the summer, sending a ripple effect through the industry as transactional volume slowed while investors waited to see how universities would proceed.
As we move toward the close of October, universities have selected their path forward, and while these choices haven’t been set in stone due to the changing nature of the coronavirus, the industry is now able to get a better view of the pandemic’s impact on the fall semester and the outlook moving forward.
Leaders in market analytics and multifamily research sat down for an early afternoon panel yesterday at the NMHC/InterFace Student Housing Conference to provide a comprehensive update on the economy at large with a focus on the student housing sector.
“COVID-19 ended almost an 11-year expansion period for the economy — the longest expansion in over 60 years,” began Jeanette Rice, head of multifamily research for the Americas at CBRE. “We are on the path to recovery, but we still have a long ways to go.”
The U.S. has gained 11 million jobs since the beginning of May after losing 22 million jobs between February and April at the start of the COVID-19 pandemic. The picture for unemployment is much the same. After a peak in April with almost 15 percent unemployment, the national unemployment rate has dropped to 7.9 percent.
“It’s funny to think of 7.9 percent as good since we were at 3 percent and change before COVID, but given where we’ve been, it does feel better,” said Rice. “Still, there is plenty of stress in the market.”
The Federal Reserve Bank of New York’s Weekly Economic Index (WEI) has shown sustained improvement since the start of the pandemic, stock markets have recovered, and retail sales numbers came in last week with 5 percent growth — much higher than expected, according to Rice.
“Consumer confidence is rising but it’s not nearly where we were pre-COVID, so we have a long ways to go,” she said. “It bodes well for the holiday season that we will feel better about the economic outlook and perhaps spend more money on holiday shopping, but it’s still tough.”
Leasing, Enrollment Numbers and Rent Growth
“Recessions can be really helpful for student enrollment,” said Rice. From 2008 to 2010, 1.3 million new students entered school at four-year public and non-profit, private universities and colleges — a sharp increase, noted Rice.
While that traditionally is true, early estimates from CBRE for this year show overall enrollment for the fall semester down 3 percent year-over-year. Enrollment for graduate students, however, grew by 2.7 percent over the last year.
“In the area where student housing is most prevalent — four-year universities and colleges — enrollment numbers were down 1.4 percent at public universities and 2 percent at private universities,” said Rice.
This has parlayed into lower occupancy rates at student housing properties, according to data collected by RealPage, which showed 86.9 percent of U.S. purpose-built, off-campus housing stock occupied as of September compared to 91.1 percent in fall 2019 and 91.3 percent in fall 2018.
“The national occupancy level decrease very closely mirrors the decrease in enrollment overall,” says Carl Whitaker, senior manager of market analytics and asset optimization for RealPage. “If you look at RealPage’s core 175 university markets, the occupancy rate did come up a little bit — closer to 88 percent.”
“Up until March, fall leasing demand was leading over the demand seen in 2019,” continued Whitaker. “The year got off to a pretty good start and I think that points to less of a demand issue with student housing and more so affirms that this was a true black swan event.”
Much like leasing demand, rent growth was trending ahead of fall 2019’s pace up until March but lost momentum due to weakened demand. Ultimately, rent grew by 1.4 percent year-over-year for fall 2020 according to data collected by RealPage.
“This was one of the surprising factors this year,” said Whitaker. “While that level of growth was about 30 basis points off from last year, the fact that we had growth at all despite such a significant industry headwind during COVID-19 was pleasing to the industry.”
For fall 2021, RealPage predicts that — while new construction will be at a 10-year low — the national rent growth and occupancy levels should remain at a consistent growth level.
An aging population, continued construction activity at select schools and questions regarding international enrollment were noted as headwinds for the industry. Possible tailwinds include continued growth in the share of high school graduates attending college and the potential for modest enrollment boosts in 2021 due to the return of students who sat out the 2020-2021 academic year due to the effects of COVID-19.
— Katie Sloan
Keep checking in this week for more coverage from the NMHC/InterFace Student Housing virtual conference.