Student Housing and COVID’s Impact on College Towns

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As fall heralds the return of a new school year, colleges and universities around the country are acting fast to welcome students back to campus during an ongoing pandemic. Many institutions have elected not to return, opting for a virtual curriculum or some hybrid of in-person and online study.

For those physically attending their schools, student housing and life on campus are looking very different. And for college towns where fall is usually the busiest time of year, local businesses will likely see a significant impact from the sharp decrease in clientele. However, student housing has proved relatively resilient amid the economic upheaval and is expected to return to pre-COVID levels quickly.

This article seeks to explore the current happenings in the student housing sector, where the property type is headed, and what the future looks like for college-town livelihoods. 

What are schools doing in Fall 2020?

Before COVID, college towns came alive each fall. Student housing and multifamily units were already leased for the year (usually in the previous spring). Downtown was packed with parents helping their kids move, and hotels were booked months ahead of commencement. Bars and restaurants were ready to receive thousands of residents that bolstered the glut of their August-May seasonal economy.

This year, colleges are forced to adapt to protect their students and staff from the pandemic. Per a survey by the College Crisis Initiative at Davidson College, only 23% of US universities planned on holding in-person classes this fall, while only 15% would offer a hybrid model. The remainder decided to employ all-virtual learning measures, at least for this first fall semester.

However, even at schools that will open their classrooms for in-person education, COVID has already upended daily life and extracurricular activities. Sporting events, like the Big Ten and Pac-12 conferences, are canceled, while concerts, Greek life activities, and other school-sponsored gatherings are indefinitely postponed or encouraged to continue virtually. Dorms with shared bathrooms and amenities have mostly shuttered, with other schools imposing strict behavioral guidelines, including regular testing. 

The lack of extracurricular appeal, onset of virtual classes, and COVID-related safety concerns have forced many students and their families to reconsider enrollment this fall, particularly incoming newcomers. Overall, analysts expect freshman enrollment to be slightly down, as they choose to attend less-expensive community colleges or elect to take an unplanned gap year. 

How students add to college town economies

With students gone, what does that mean for local economies? 

Many US towns and cities that host the country’s 4,000+ colleges and universities earn most of their revenue when school is in session. In New England, cities and towns with higher education-reliant economies approximate 38% of jobs and 45% percent of wages from local institutions. 

In the Ithaca metropolitan area, home to Cornell University, unemployment rose to 10 percent from 3 percent before the pandemic. According to Ithaca mayor Svante Myrick in an interview with the New York Times, sales tax receipts have plummeted along with the vanished $4 million per week in student spending. Too, about two-thirds of the land in Ithaca are university-owned and exempt from property tax.

The cancellation of most university sports events will likely have a heavy impact on sports bars and hospitality properties in college towns. Large schools such as Penn State rely heavily on athletic tourism to bring in bar patrons and devoted fans to football games. State College, PA’s retail sector, like other college towns, was built to cater to a student population. Per Ronald Filippelli, the mayor of State College, in an interview with The Daily Collegian, “Penn State is the economic engine for [North Central Pennsylvania].”

With lowered enrollment and subsequent layoffs of non-essential university positions due to low on-campus populations, so-called “town and gown,” economies face an uncertain level of impact on their businesses come fall.

The state of the market for student housing properties

Purpose-built student housing properties first emerged in 2010 and took off with gusto in 2012 alongside a glut of new Class A development. Typically, student housing properties are similar to multifamily assets, where each apartment unit has a particular number of bedrooms. The units are rented by bedroom/tenant instead of as a complete unit and target students attending nearby universities. 

Per a 2019 CBRE asset class report, occupancy levels for student housing hovered around 95% from 2016-2019. The report also indicated a surge in the sector’s investment activity, growing to $11 billion in 2018 from $2 billion in 2011. As demand for student-housing properties boomed, new buildings started to look more like boutique hotels, while Class B and C development operated more like hostels with communal bathrooms. It was the birth of a whole new asset class.

What will happen to student housing in Fall 2020?

During COVID-19, student housing and dorms with hostel-like layouts are at the highest risk of impact, as universities make moves to reduce occupation density due to mandated social distancing. However, properties built with individual students in mind are seeing higher occupancy levels and benefitting in the short term. 

Many universities will likely revert to single-occupancy rooms, and phase out the more historically standard doubles with shared amenities. This could result in de-densifying the housing on campus this fall by 20% to 50%. As a result, that demand would refocus on off-campus, purpose-built student housing with roomy units and individual bathrooms already accommodating to social-distancing needs.

What is the future of student housing?

The numbers are still rolling in, but in the near-term, student housing will likely see a drop in occupancy due to both health and safety concerns as well as from international students postponing their education at US schools. In the long-term, we may observe a systematic shift in student learning behavior as schools embrace virtual classes and cause a decline in demand for space.

This shift is not a foregone conclusion, however. While most students living on campus went home at the end of the 2019-2020 school year, many upper-level students elected to stay. They didn’t want to move home and preferred the lower risk of smaller-density college towns. Per a University Business interview with Frederick W. Pierce, 61% of student residents remained on properties in March, which increased to 70% in April. Most students living off-campus didn’t go home: they’d already secured financial aid for boarding costs. 

Historically, university enrollment growth has been stable during economic down cycles, pointing to student housing as a recession-resistant asset class. The same report expects pricing and cap rates to return to pre-COVID levels and perhaps even long-term cap rate compression as student housing proves its resiliency in challenging economic times.

While COVID-19’s overall impact on college towns and student housing has yet to unfurl, promising signs point to a relatively quick recovery following the pandemic, likely in the 2021-2022 school year. Students will still want to attend college during economic unrest to obtain financial security following graduation. In turn, students’ return to campuses will circulate their discretionary income and keep school employment rates afloat in university-reliant economies. Once schools figure out the new normal, investors will likely see a more stable asset class in student housing and renewed opportunity in college town properties.

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Shanti Ryle
Shanti Ryle

Content Marketing Manager

Shanti leads Crexi's content marketing strategies with 7+ years of content development experience, creating everything from blog posts to award-winning podcasts. Previously, she worked on content teams at Snapchat, Weedmaps, and HopSkipDrive as well as developed copy, articles, and media for freelance publications.

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