Through the middle of 2020, the purpose-built student housing sector saw $1.58 billion in transaction volume from student housing investors. Although pandemic-related school closures undoubtedly affected the sector, today, the demand for student housing continues to exceed the supply in many markets, creating potential opportunities for student housing investment.
What is Student Housing?
Student housing includes off-campus single-family homes and apartment rentals, rented by college and university undergraduates and graduates as an alternative to smaller-sized on-campus dormitories.
Off-campus student housing is usually owned by private investors and can provide reliable returns through all economic cycles. Students often view university housing off-campus as a preferred accommodation choice due to rising dorm fees and the opportunity for more privacy and independence.
There are currently about 19.6 million undergraduate and graduate students enrolled in colleges and universities nationwide. As the economy continues to return to normal and vaccination rates grow, the demand for student housing in university towns is also strengthening, with most universities reopening for in-person instruction for the fall semester.
Student Housing Performance in 2021
Pre-leasing for the Fall 2021 semester has surged 8.6% year-over-year, creating a boon for the student housing business.
With about 77% of the beds at 175 core universities already pre-leased for the fall semester, the month-over-month pre-lease gain for the 2021-2022 school season is 9% compared to the previous year. Provided the strong leasing performance of student housing continues, the national pre-lease rate could surpass 90% by school’s start.
Rent growth
The annual effective rent growth of student housing increased by 1.2% in June. Homes and apartments more than one mile from campus showed the largest rent growth acceleration, with on-campus housing and properties nearest to campus seeing the lowest gains in rent:
- On-campus / <0.5 miles from campus = 1.0% rent growth
- 0.5 miles – 1.0 miles from campus = 1.3% rent growth
- +1.0 miles from campus = 1.7% rent growth
Increasing demand
The Yardi Matrix Student Housing report covers 1,000 universities and colleges, including the top investment grade universities across all collegiate conferences, known as the Yardi 200. According to Yardi, student housing investments are poised for growth this year, as occupancy levels and rents continue to rise:
- Positive growth outlook for the fall terms and beyond is driven by students returning to four-year schools after taking a gap year, the gradual return of international students, and new high school students.
- Reports expect rents to remain stable or increase modestly as student housing demand continues to accelerate.
- Student housing in college and university towns generally performs well due to less competition from conventional apartment properties.
- Localized supply-demand imbalances could create potential headwinds in some student housing markets.
Best Cities to Invest in Student Housing
The performance of student housing investments in college towns is generally solid and reliable.
Students often don’t move away after they graduate, which increases the education level of the local communities. Job creation tends to be higher than average, and the quality of life and cultural options make college towns a place where residents want to live.
Here are ten markets worth considering for student housing investment, listed in alphabetical order, per a recent RealPage report:
Ann Arbor, MI
- College/university: University of Michigan
- Enrollment: 47,000
- On-campus/purpose-built off-campus housing (beds): 18,500
- Conventional apartments: 38,000
- Occupancy rate: 97.3%
- Rent growth (year-over-year): 5.3%
- Population: 120,735
Boulder, CO
- College/university: University of Colorado
- Enrollment: 37,000
- On-campus/purpose-built off-campus housing (beds): 11,400
- Conventional apartments: 29,300
- Occupancy rate: 96.6%
- Rent growth (year-over-year): 7.6%
- Population: 106,392
Columbia, SC
- College/university: University of South Carolina
- Enrollment: 35,000
- On-campus/purpose-built off-campus housing (beds): 18,400
- Conventional apartments: 50,400
- Occupancy rate: 95.9%
- Rent growth (year-over-year): 9.7%
- Population: 133,273
Eugene, OR
- College/university: University of Oregon
- Enrollment: 21, 700
- On-campus/purpose-built off-campus housing (beds): No data
- Conventional apartments: 25,300
- Occupancy rate: 98.3%
- Rent growth (year-over-year): 7.5%
- Population: 168,302
Knoxville, TN
- College/university: University of Tennessee
- Enrollment: 40,500
- On-campus/purpose-built off-campus housing (beds): 17,100
- Conventional apartments: 51,400
- Average occupancy rate (5-year): 98.1%
- Annual rent growth (year-over-year): 9.9%
- Population: 186,173
Providence, RI
- College/university: University of Rhode Island, Brown University, Bryan University, Providence College
- Enrollment: 35,000
- On-campus/purpose-built off-campus housing (beds): Unknown
- Conventional apartments: 106,600
- Average occupancy rate (5-year): 98.4%
- Annual rent growth (year-over-year): 8.2%
- Population: 179,494
Provo, UT
- College/university: Brigham Young University
- Enrollment: 36,400
- On-campus/purpose-built off-campus housing (beds): 15,000
- Conventional apartments: 23,600
- Average occupancy rate (5-year): 97.8%
- Annual rent growth (year-over-year): 11.7%
- Population: 116,403
Spokane, WA
- College/university: Eastern Washington University, Gonzaga University
- Enrollment: 20,000
- On-campus/purpose-built off-campus housing (beds): 1,000
- Conventional apartments: 41,500
- Average occupancy rate (5-year): 98.4%
- Annual rent growth (year-over-year): 15.0%
- Population: 217,353
Springfield, MO
- College/university: Missouri State University
- Enrollment: 23,500
- On-campus/purpose-built off-campus housing (beds): Unknown
- Conventional apartments: 24,000
- Average occupancy rate (5-year): 98.1%
- Annual rent growth (year-over-year): 8.6%
- Population: 167,051
Tucson, AZ
- College/university: University of Arizona
- Enrollment: 46,900
- On-campus/purpose-built off-campus housing (beds): 9,380
- Conventional apartments: 81,400
- Average occupancy rate (5-year): 96.7%
- Annual rent growth (year-over-year): 16.8%
- Population: 548,082
Benefits of Investing in Student Housing
Universities and colleges create a significant demand for housing from undergraduates and graduates, professors and administrators, and secondary businesses servicing college communities.
While there are plenty of potential benefits to investing in student housing, there are some drawbacks to consider as well:
Benefits of investing in student housing
- Demand for student housing exceeds supply
- New students enrolling each year ensure a consistent supply of renters
- Solid rent growth is driven by low supply and high demand for student housing
- Landlords may request a cosigner guarantee from parent or guardian
- Students require more basic housing than other renters and aren’t seeking luxury accommodations
Drawbacks to investing in student housing
- Students are often renting for the first time and may not understand landlord expectations
- Increased risk of property damage when renting to students
- Student renters often do not have experience managing money
- Annual turnover of student tenants can lead to increased expenses and lower tenant retention
- Many student housing units sit vacant during the summer, leaving landlords with no rental income
Student housing can be a potentially profitable niche for real estate investors. In many college and university towns, demand for student housing far exceeds supply, creating double-digit annual rent increases and occupancy rates near 100%.
