Billions Funneled into Student Housing as Rent Growth Exceeds Apartment Market

Investors are flocking to student housing as its rent growth outpaces traditional multifamily properties, lured by its resilience during economic downturns and higher-than-average returns.

Rising star: Major investors are pouring billions into the student housing market attracted by its higher rent growth, outperforming traditional apartments. The off-campus student housing sector saw a 7.1% rent increase over six months, with some universities noting growth above 20%. Seen as “recession-proof,” investments are especially concentrated in Sun Belt states, known for their substantial rent and enrollment hikes. However, this trend has raised concerns over the capacity of campus housing.

Student housing vs. apartment market: While student housing rents have surged, apartment rents have begun to plateau after reaching record highs in the past. For instance, student housing rent growth this year has substantially surpassed previous years, with data indicating a marked increase in rent growth rates. In contrast, multifamily property rents rose at a more modest rate, making student housing a more appealing investment.

Major deals: BREIT’s acquisition of American Campus Communities for $13B last year underscored the growing appeal of student housing in the commercial real estate market. In addition, Blackstone’s ACC has initiated two major student housing projects within its $3B program. However, as student enrollments rise, many universities struggle to provide adequate housing, leading to local market imbalances. Cities such as Boston, for instance, are experiencing shortages in off-campus apartments.

Shifting tides: Investor interest in student housing is now leaning towards luxury properties near campuses. Last year saw record property sales in this sector, with over $10B invested for two straight years. However, 1H23 saw a slower investment pace due to higher rates, changing the investor landscape. Investment funds made up 52% of deals in 1H23, a jump from 12% in 2H22, while universities and public REITs reduced their participation. There’s also a spike in foreign investment, especially from the Middle East and Asia.

➥ THE TAKEAWAY

Campus housing crunch: The booming student housing sector is a double-edged sword. On the one hand, it’s attracting significant investment, but on the other, it’s amplifying accommodation issues in university towns. With universities experiencing record enrollments, there’s an urgent need to house the growing student body without overburdening local housing markets. As enrollments surge, investors are faced with the challenge of benefiting from this growth while also addressing the housing deficits in academic communities.