The Future of Student Housing: Trends and Predictions

Status of the current student housing market

The student housing market, a crucial segment within the broader real estate industry, has shown remarkable resilience amidst economic fluctuations. Following the pandemic-induced challenges, the sector has rebounded with impressive occupancy rates. By Fall 2023, occupancy in the top 200 investment-grade universities reached 94.6%, a significant recovery from the 88% occupancy rate in Fall 2020. Pre-leasing for the 2024-2025 academic year also shows promising early results, with 25.2% re-leased in October 2023 compared to just 10.4% in October 2022.

This resilience highlights the persistent demand for student housing, driven by the necessity for students to find suitable accommodation near their educational institutions. In addition, strong rent growth in universities like Purdue, Tennessee, Arizona State, and Arkansas by 7% year-over-year in November 2023 further emphasizes the sector’s stability and growth potential.

Despite persistent challenges such as higher interest rates, inflation, and declining college enrollments, flagship universities with strong brand recognition continue to attract students, ensuring a steady demand for student housing.

Importance of student housing in real estate investments

Student housing stands out as an appealing investment opportunity within the real estate market due to its consistent demand, longevity, and relative resilience to economic downturns. Investors are particularly drawn to this sector because students, irrespective of broader economic conditions, require housing throughout their educational tenure. Additionally, a shortage of student accommodation in many markets maintains high occupancy rates and provides reliable rental income streams.

Unlike other real estate investments that may closely track economic cycles, student housing benefits from the cyclical stability of educational institutions’ enrollment trends. Despite a trend of declining overall college enrollments since 2012 due to rising education costs and declining birth rates, investments concentrated around major, well-recognized universities continue to show robust performance. A focus on markets with higher projected rent growth can help offset the impacts of high interest rates, making student housing a viable option for long-term real estate investment strategies.

Market drivers

Demographics and the expansion of the middle class

According to projections, total enrollment for the academic year 2024-2025 is expected to surpass 15 million students, excluding international students, highlighting ongoing demand pressures.

Considering the increasing number of international students, the demand only gets higher. Demographic shifts, including the expansion of the middle class, significantly influence student housing demand. Global economic improvements have enabled more families from developing countries to afford higher education abroad, increasing the number of international students seeking accommodation.

The demand remains particularly strong at Tier 1 universities with high enrollment and significant brand value, zones where rent growth and housing premiums are most notable, as evidenced by the effective rent growth of around 8% at top-tier universities between August 2022 and August 2023.

Despite geopolitical tensions and restrictive immigration policies in certain regions, the influx of international students continues to be a robust contributor to the vitality of the student housing market.

Pre-leasing activity for the 2024-2025 academic year in core universities reached 49% as of January, indicating strong demand from both domestic and international student populations.

Rising demand for affordable student housing

The demand for affordable student housing has escalated as students and families grapple with increasing tuition fees and living costs. Universities and developers face pressure to provide cost-effective living options that won’t exacerbate students’ financial burdens. This trend also reflects a broader shift toward prioritizing education costs over luxury amenities, as indicated by students’ preference for academic-focused housing facilities over additional amenities like pools.

Diverse unit types and communal spaces

Student housing is increasingly adapting its unit types and communal spaces to better cater to modern student preferences. The shift towards off-campus living emphasizes personal space and independence while maintaining proximity to educational institutions. Properties located within a mile of campuses are observed to perform better, driven by the convenience and community they offer. Modern communal spaces have evolved to include study areas, collaborative workspaces, and technology-enabled environments, aligning with students’ academic and social needs.

Emerging opportunities in student housing

Student preferences will continue to influence the development of new housing projects, with an increased emphasis on technological amenities and smart home features. This trend reflects the growing demand for living spaces that are not only comfortable but also enhanced with the latest technological advancements, such as high-speed internet, automated security systems, and energy-efficient appliances. These innovations aim to provide students with a convenient and connected living experience that supports their academic and personal lives.

Preparing for changes in the student housing landscape

To navigate the impending changes in the student housing market, universities need to revisit and potentially recalibrate their housing policies to accommodate changes like increased demand for various accommodation types and enhanced health and safety standards.

Students will benefit from staying informed about the range of available housing options and advocating for features that align with their preferences, especially related to affordability, sustainability, and communal amenities. By remaining attuned to these trends and leveraging the insights provided by detailed market research, all stakeholders can better anticipate the shifts in student housing and strategically plan for a future characterized by resilience and growth.