By Michael Orsak, Senior Vice President of Investments
The headline articles stating that macro level pre-leasing status reflecting a year-over-over deficit may have some potential investors concerned about the student housing space. However, the pre-pandemic preleasing velocity in 2020 (before March 15, 2020) was a historical high with the industry being approximately 3% ahead of the 2019 preleasing level. From February 12, 2021 through April 26, 2021, the Industry reduced its deficit from approximately 9.6% behind to approximately 4.4% behind 2020 preleasing levels. As universities across the country are putting plans in place to return to in-person instruction, there are many reasons to expect that preleasing velocity will upswing in the spring through summer as the 2021 school year approaches.
We’ve seen investor appetites increase quarter over quarter as additional data has been released related to the resiliency of the student housing industry throughout the pandemic. On top of the proven recession-resilient nature of student housing, we’ve identified three other primary reasons that investor demand has increased:
- Expected high occupancy rates, due to returning 2020 gap year students and incoming 2021 high school graduates. Many just-graduated high school seniors in 2020 chose to take a gap year during the pandemic, but those students are expected to return to school this year and in the years to come. In combination with incoming 2021 high school graduates, the next four to five years are predicted to have extra demand for off-campus housing.
- Timeliness – You often make your money on the buy-side. Right now, we believe that there is a window to acquire properties before additional interest is derived from a return to normal occupancy in the fall. With all occupancies expected to go back to stabilization this fall, demand will only increase. Getting into a student housing investment now will offer investors a slight discount compared to waiting until later in the year, increasing overall returns.
- Investors in other real estate spaces have switched to student housing. Due to the nature of the pandemic, office, core central business district multi-family, and retail markets have suffered, but the same has not been true of student housing. Current investors are in a great spot, as evaluations are predicted to hold up in 2021, as well. Potential investors are encouraged to get into their student housing investment as soon as possible, as interest (and prices) will only continue to increase, reducing returns moving forward.
For additional insight into the current state of student housing investments, I recommend viewing this webinar I filmed in collaboration with premier global law firm Shearman & Sterling. It takes a deep dive into the pandemic’s effect on student housing investing, and why current and potential investors can be confident in their investment as student housing has proven, time and time again, to be a recession-resilient asset class. I fully expect 2021 occupancy rates to follow this multi-year trend and bounce back. The time is right for getting into a student housing investment now.
If you are interested in learning more about student housing investing, or pursuing an opportunity to do so, click here. We offer a fund that invests in a diversified portfolio of properties, managed by our team of investment experts. We have participated in the acquisition and development of over $1.7B in student housing assets over the last 13 years, and would be honored to manage your investment portfolio. Click here to learn more about our investment approach.