The real estate sector has not been having a great time in the recent past. Most things that they tried their hand at were either shot down the drain or ruled out because the prospects looked grim. Juggling between interest rates that were surging, an undesirable rate of office space vacancies and a waning enthusiasm for investing in commercial real estate, the entire real estate industry is currently experiencing a depressive state. However, even amidst such doom and gloom, a speck of light that is shining light on the real estate sector is student housing. The entire world was pleasantly surprised by the resilience that student housing demonstrated in the face of adversity.
Student housing: the need of the hour
Student housing has always been an attractive area for the real estate sector. Mainly because of the fact that it is a hedge against recessionary pressures. Despite the fact that it was on hold because of the pandemic, there is a significant resurgence in the number of students opting to study abroad at universities. As mentioned in JLL, Australia; a top choice for international education, experienced a remarkable increase in the number of student visa holders in 2022, marking the largest annual increase ever recorded. This was a substantial rise of 44% bringing the total to 456,970, as reported by the Department of Education. Even the US witnessed a similar rise. And of course, naturally, the demand for housing experienced a surge and the supply fell short, simultaneously.
JLL states, in the United Kingdom, ‘StuRents’; the largest student rental service in the country, anticipates a deficit of approximately 450,000 student accommodations by the year 2025.
Meanwhile, in Australia, there is a growing trend where colleges are reportedly receiving up to seven applications for every available bed. According to JLL’s Australian Student Accommodation Investment Update for 2022, this heightened demand is coming from emerging economies in Asia, such as Indonesia and Thailand, as well as from South America.
As a result of the shortage of available student housing, rental prices for students are on the rise. In the past year, average rents in Canada and Australia witnessed an 8% increase, while in the United Kingdom, they saw a 4.4% rise. In other parts of Europe, rents also experienced an uptick, with a 3.1% increase, as outlined in the BONARD.
An outlook
As put forth by 360 Research Reports (a renowned source for gaining market research), the student housing market is projected to experience significant growth between 2023 and 2030, building on the steady growth observed in 2022. This anticipated expansion is attributed to the increasing implementation of strategic initiatives by key industry players to address the discrepancy between supply and demand.
In 2021, the global Student Housing market had a valuation of USD 11,000.0 million, and it is anticipated to exhibit a compound annual growth rate (CAGR) of 4.95% throughout the forecast period. By 2027, the market is expected to reach a total value of USD 14,700.0 million.
Even the Wall Street Journal praises the student housing segment for being a standout performer in the commercial real estate industry. In 2022, property sales related to student housing reached a record-breaking $22.9 billion, as reported by the CRE firm CBRE Group. Unlike multi-family rents, which have moderated after substantial increases in the previous year, student housing rents have continued to rise, registering approximately a 9% increase, according to ‘RealPage’, a company tracking the apartment market.
Blackstone, a prominent real estate investment firm, made a significant acquisition in this sector by purchasing American Campus Communities for $12.8 billion in the previous year, demonstrating their confidence in the sector’s potential.
One of the key attractions of student housing is its ability to fight against economic downturns. As stated in an article by Joe Dyton titled “Yes, bright spots still exist in CRE” (which was published in Connected, a real estate online magazine), Jacob Werner, co-head of America’s acquisitions for Blackstone real estate, highlighted this by stating that student housing is an “all-weather asset class.” In prosperous times, people pursue education, and during challenging economic periods, more individuals tend to enrol in educational programmes.
Furthermore, the sector is expected to benefit from limited new construction due to increased interest rates, which means there will be fewer new housing options available. This limited supply allows landlords to raise rents.
However, despite the positive sentiments encapsulating student housing, it’s predicted that student housing property sales may not reach the same strength as in 2022. That being said, as stated in Yahoo Finance, Muinzer, a privately held real estate investment firm co-founded by Marc Muinzer and T2 Capital Management, made a noteworthy acquisition in June by purchasing Village West, situated near Purdue University in West Lafayette, Indiana, USA. Village West stands as one of the nation’s largest student housing assets, encompassing 1,134 beds on 22 acres of land. Notably, it was already fully preleased for August 2023 and the subsequent 2023-24 academic year. Muinzer began investing in student housing back in 2002 and is now counted among the prominent owners in both the Big Ten and Southeastern conferences.
Michael Snyder, the Chief Operating Officer of Muinzer, emphasised that their acquisition efforts are far from over. He stated, “Student-housing fundamentals are currently at their strongest in the past two decades,” and they have ambitious plans to acquire an additional $1 billion worth of student-housing assets in high-growth areas during 2023 and 2024.
Despite a decline in student housing values this year, primarily influenced by higher interest rates, this decrease has been less severe compared to other sectors within the commercial real estate market. This pliability is attributed to the continuous expansion in rents and occupancy rates, as highlighted by Jacklyn Fitts, the national student housing co-leader at CBRE. In essence, student housing is showing distinct performance trends when compared to other asset classes in the current market landscape.
Another real estate class that is often compared with student housing is multi-family properties. While the latter does fare better than the former, it is interesting to see the character arc of the latter because the extent to which student housing as a whole and its rent have begun to outperform conventional housing is complimentary.
(Sandunlekha Ekanayake)