Student housing managers, owners and operators in the middle of a new development project, or planning to start a project in 2020, were faced with challenges no one could have predicted at the onset of the pandemic. Suddenly faced with a mountain of uncertainty, lenders wondered: Would investing in a development prove profitable in a year where it was questionable if students would even return to school in the fall? What developmental modifications will need to be made to account for social distancing and sanitization best practices? How much would rising construction material prices affect a development’s progress?
In truth, while some student housing development projects were put on pause due to these concerns, the overall quantity of on-campus developments increased in 2020 (RealPage), and off-campus developments remained the same (RealPage). With 2020 in the rearview mirror, a more holistic picture concerning the state of new and in-progress developments can be more accurately determined.
Here’s what we’re seeing in response to common concerns developers faced in 2020, and what we’re forecasting in 2021:
Will students return back to school this year? Is moving forward with a development project a wise financial decision?
Comparing October 2020 to the previous year, overall student housing occupancy decreased by just approximately 3.5% (CBRE Student Housing). We expect occupancy rates to only continue to improve in fall 2021 (and into 2022 and 2023) as more vaccines are rolled out and hybrid learning is more fully embraced, helping many students feel more comfortable. Given these realities, it may be the opportune time to pick up paused development projects or plan for projects that expect to be completed in the next one-to-two years.
In light of the pandemic, what will become the new norm for communal and private spaces within a student housing community? Should in-progress developments re-work their existing infrastructure?
The pandemic certainly caused developers to take a step back and reassess existing blueprints in order to accommodate for a new world of social distancing and top-of-mind sanitization expectations. Many trends that were already emerging were amplified in 2020. In summary, here is what we forecast will become expectations, or at least strong considerations, for any student housing development, moving forward:
- Dense markets familiar with shared bedrooms, like New York City and California, may have to seriously consider how to permanently shift bedrooms into single-person spaces. This will be a big change for these markets but may be necessary to help keep students and their parents comfortable and safe.
- Across the board, common areas will need to be reconfigured. For now, open spaces with ample seating for densely packed gatherings will have to fall by the wayside. To comply with social distancing guidelines, developers will need to build more individual, private study rooms, but can utilize glass walls to create an open feel.
- Package lockers will become more important than ever. An emerging trend for the last few years, the pandemic pushed package lockers to the forefront of many developers’ minds. Curbing the need for office interaction (and increasing convenience for students), we see this feature as a critical component of any development.
- Property technology and utilities will shift to touch-free. Small-but-important changes to everyday amenities and features will provide a safer, touch-free resident experience. Technology, like bluetooth printing (which bypasses the need to touch buttons in a business center), automated touch faucets, and foot operated door openers, will become an expectation.
For developments that started at the beginning of 2020 or in the years prior, a difficult financial decision may have to be made: rework existing infrastructure to accommodate the above shifts or move forward with features and amenities as planned? Ultimately, the decision is up to each manager, owner, or operator given the market, but developments with infrastructures that are up-to-date with current and future expectations will fare best in terms of occupancy and retention.
How much did rising construction material prices affect developments in 2020?
Despite an unarguable rise in construction materials that caused setbacks for some developers, construction in general did not significantly slow down in 2020. We are seeing that most projects that were already in development, with an expected 2021 completion, are still projected to deliver. In 2021 and the coming years, we anticipate that construction costs will continue to lower as pandemic-created disruptions to the supply chain are mitigated.
In general, developers can continue to be optimistic about the student housing industry as a whole and about moving forward with projects. On average, students will go back to school this fall, predictably in higher numbers than last year, and construction costs are expected to normalize. While each developer will need to decide what features, amenities and infrastructures to implement in response to the pandemic, we believe that developers who take current realities into account will be top-choice communities for students and their parents.
Given the ever-fluctuating trends of 2020, the expertise and knowledge of a seasoned student housing development consultant will be more critical than ever before in 2021. Each market is unique and a one-size-fits-all development approach will not work. Campus Advantage can conduct in-depth market analyses to determine supply/demand fundamentals of each college or university based on historical performance and the impact of COVID-19. There are a number of factors we will research:
- Enrollment projections prior to the pandemic
- Each college or universities de-densification, and if student supply is forecasted to come back online, be in-person, or remain hybrid in Fall 2021
- COVID-19’s effect on average occupancy, rent growth and projections over the next few years
Combining the data from the analyses above (and more), we will provide consultation on the best steps forward for your specific property and market. If you’re interested in hiring a student housing development consultant, or just want to learn more about our development offerings, contact us here for more information.