Demand, Affordability and Less Density Plague Canadian Student Housing Market

Like America, Canada is facing housing issues that have been exacerbated by the pandemic. Apartment rents in many cities throughout the provinces of Ontario, Quebec, and British Columbia have risen by more than 5 percent — sometimes as high as 8 percent — between October 2019 and October 2020, according to the Canadian Mortgage and Housing Corporation. Students looking for a better deal on-campus were hard pressed to find any as most universities shut down or drastically reduced their on-campus capacities during 2020 and into 2021.

“Unlike the U.S. market where private institutions have more self-governance to make independent decisions about on-campus occupancy, universities in Canada were guided by the government to make collective decisions to limit on-campus occupancy and promote remote learning,” notes Connor Patterson, COO of Varsity Communities in Ontario. 

Though some students returned home, others chose to lease off-campus apartments near their institution, further constraining this market. 

“As we emerge from the pandemic, on-campus residences have health and safety challenges to manage,” says Sanjil Shah, managing partner at Alignvest Student Housing in Toronto. “Most residences have shared bedrooms and some have communal bathrooms. These configurations are less than ideal in the post-pandemic world where students and their parents have a heightened awareness of health and safety issues and with our social distancing norms.”

In contrast, Shah notes that more than 99 percent of Alignvest’s off-campus student housing consists of private bedrooms with private en-suite bathrooms. Adding to this demand for near-campus housing is the fact that many unemployed individuals are using this time to go back to school while eviction moratoriums, rent freezes and rent relief measures remain in place in many provinces to prevent the displacement of current tenants. Canada is also the destination of choice for many international students, all of whom will require accommodations upon their arrival. 

Even before the pandemic, areas like Metro Vancouver were experiencing a severe supply-demand imbalance when it came to student housing. There was a shortage of more than 14,300 student housing beds in the region in 2019, according to Real Estate Investment Network Canada, which noted the University of British Columbia (UBC) had a waitlist of 6,500 for the 2019-2020 school year. 

With 12,000 beds, UBC has the most student housing of any Canadian university. Still, it’s not enough. The school is planning to increase its bed count to 17,300 by 2030, with 3,000 of these beds added over the next five years. 

Privacy Please On-Campus

Even before COVID, many Canadian student housing operators and developers were aware that students desired more space and privacy. 

“Most of the new residences built over the past five to 10 years across the large Canadian universities have been designed to offer a more private experience compared to the older dorm-style residences,” explains Jonathan Turnbull, managing director and head of Canadian transactions and business development at Harrison Street Real Estate Capital in Toronto. “The market has been demanding those options and students are willing to pay a premium for those types of beds. The shift has been driven by student demand and is supported by higher economics to the schools.”

This may have been the trend for some time, but with increased demand and the need for existing residence halls to now accommodate fewer students due to COVID, new construction isn’t housing the volume of students it needs to keep pace with demand. 

“There is either not enough on-campus housing stock to allow for single occupancy, or single occupancy is cost-prohibitive, especially in major urban markets,” says Patrick Flaherty, senior vice president in Blue Vista Capital Management’s student housing division in Chicago. “The student housing industry in Canada continues to evolve and we believe the demand for the characteristics of purpose-built student accommodations (PBSA), such as bedroom-bathroom parity, will only continue to increase in the future.”

It’s a trend Patterson has seen as well, though he’s unsure whether this emphasis on privacy will continue post-COVID. 

“This past year we have noticed unit mix demand has favored studios and one-bedroom units over four-plus bedroom unit mixes consistently,” he notes. 

Whether this more individualized experience continues to be attractive or not, Patterson believes student housing developers face a rough road ahead when it comes to churning out new stock.

“Pre-COVID, one challenge with new development in the Canadian market has been long entitlement processes and development lead times,” he continues. “COVID has slowed this down even further, making it a challenge to commit capital to build new facilities.”

The alternative, of course, is adapting the current supply to fit today’s health and safety needs, as well as student preferences. This could significantly reduce occupancies if, for example, a four-bedroom, two-bathroom residence that could house eight students needs to convert to the private bedroom with en-suite bathroom model. Not only would these conversions result in lower occupancies but, in many cases, they’re difficult and expensive to pull off. 

Turnbull notes this may be surprising to hear, as many major U.S. colleges are known for taking historically significant residences and modernizing them for today’s students, with private configurations, amenities and technology.

“It is feasible, but at a cost – that cost can be measured as the straight hard costs of the renovation, which is often higher than a new build depending on the property,” he explains. “Unlike many private and public colleges in the U.S. with strong endowments, alumni support and robust student fees, the added costs of residence conversion, as well as the lost bed revenues for one or two years, is a more difficult pill to swallow. In discussions with multiple schools, the more likely outcome in Canada is to build new residences with private configurations and then over time address the older stock dorm configurations.”

Off-Campus Housing Remains Attractive

For these reasons, much of the recent student housing demand has been accommodated by off-campus housing. These facilities have been designed with privacy in mind for the past decade or so, placing them, in some instances, ahead of the game. Off-campus housing also had the benefit of remaining open at full capacity during the pandemic — something on-campus operators were not allowed to do in Canada. 

They also have more leeway over their lease terms. 

“During the 2020 to 2021 academic year, many off-campus properties offered various lease inducements, including concessions, COVID clauses or flexible leases to fill immediate vacancy resulting from the shift from in-person to online classes,” Flaherty says. 

Another reason off-campus student housing fared so well during the pandemic was that many students signed leases in January  2020 for the upcoming school year that would take place between September 2020 and May 2021. Having signed before the onset of COVID locked students into leases. 

“Students and parents honored those lease commitments and economic occupancy was not impacted dramatically, with many properties experiencing only a 3 percent to 5 percent decrease in occupancy,” Turnbull says. “Many students moved into those properties since they were already leased and required payment, in addition to the fact that they did not want to be home with their parents, opting instead to experience life outside of home.”

Turnbull notes, however, that lower-quality properties, which typically lease up later in the school cycle (between April and July) didn’t perform as well. COVID was in full swing at that time, and students didn’t have to attend in-person classes. These assets experienced a decrease in occupancy of around 20 percent to 30 percent from previous levels.  Many on-campus operators, meanwhile, capped capacity at 25 percent to 50 percent for this past school year, which ended in May.

The 2021 to 2022 school year will hopefully be a different story, as schools have announced plans to reopen, with many offering a hybrid learning experience. 

“Leasing was delayed for the 2021 school year as students tried to figure out if schools would be open in September,” Turnbull continues. “As schools have begun to announce opening plans, students have started to scramble to secure their beds for September 1.  Over the past few months, operators have adopted some innovative strategies to accelerate students signing new leases and pricing has stayed relatively firm given the expectation that schools will be open in September.”

The Student Housing Experience

Campuses may be reopening, but Henry Morton, president of Campus Suites in Toronto, notes the student housing industry has gone through some major changes due to COVID. On-campus restrictions have impacted visitor policies, amenity availability, community programming, in-person tours and elevator use. They have also resulted in the creation of virtual tours, online portals for maintenance requests and rent payments, mask policies, and enhanced sanitation stations and cleaning procedures. 

“We like to include cooking appliances in all of our units so students have the autonomy to make food for themselves as needed,” Morton says. “However, this is unlikely to become a trend for new student residences.”

Many on-campus housing restrictions may still be in place this school year, though Morton believes they won’t stick around in the long-term. 

“The 2021 to 2022 school year will likely be the last one where any student will show up to campus without full vaccination, so many buildings will not want to implement changes with long-term implications for a small short-term gain,” he continues. 

That’s not to say that things will simply return to their post-COVID norms once students are vaccinated. 

“Canadian operators have clearly changed some operating strategies over the past 16 months, and I expect certain changes to be permanent,” Turnbull adds. “Simple must-do actions by quality operators, such as increased cleaning schedules, investment in PPE, and managing amenity and building access are clearly going to be less prevalent in a post-COVID world. However, certain recent initiatives are likely to stay — such as increased and improved internet connectivity, and increased resident mental health and community programs.”

These community programs may also evolve, notes Mike Porritt, vice president of international advisory services at the Scion Group in Ontario. The online and hybrid learning models will place an additional emphasis on the “at-home” experience — whether that experience is literally at home or in a PBSA. 

“The biggest opportunity lies in partnerships with the campus to make the PBSA part of an academic experience and give students a reason to be there,” Porritt says. “Most buildings have large spaces and can host ‘live’ lectures for courses, bringing those students in the complex together safely for that academic experience that may not be available on campus this year.”

Porritt believes PBSAs can invite student services like the career, counseling, wellness, campus recreation and student activities centers into the complex to use its communal spaces for special events. 

“Students do better and — especially after this year — want a live experience as much as possible,” he continues. “The PBSA can become an extension of the campus and allow its special spaces to augment what the campus can do for its students, while those student residents will enjoy having the live interactions with campus in their ‘house.’”

Time will eventually reveal which student housing and attendance policies will remain for the long-term. In the meantime, Canada is still contending with opposing goals that call for more housing and less occupancy; more construction under heavier restrictions with fewer on-campus classes; and a social, campus-like environment that emphasizes privacy. 

As with most real estate-oriented challenges, Patterson believes the student housing operators and developers that will emerge victorious will embrace the notion of flexibility. After all, the market — and students — are going to do what they’re going to do. The best you can do is try to keep up.

“The best teams and the best tools win,” he says. “Student housing companies can continue to drive value by investing and focusing on these principles post-pandemic. The best teams can adapt to adversity quickly and come together to solve interesting problems. They can then implement the best tools faster and with greater affect. This allows companies to be nimble and ready for the next curveball the market throws our way.” 

Nellie Day 

This article was originally published in the May/June 2021 issue of Student Housing Business magazine. To subscribe, please click here