Student Housing Sector Braces for Tough Times

Demographic headwinds and oversupply are creating headaches for the asset class, according to panelists at NAA's CampusConnex conference.
Carl Whitaker, RealPage; Laura Formica, Homestead U; Ryan Kimura, RealPage

The U.S. student housing industry faces choppy waters as a Millennial-driven enrollment boom tapers off and many university markets struggle with oversupply. Growing risks to international enrollment, such as the spreading paralysis caused by the COVID-19 outbreak in China and elsewhere, pose further challenges to student accommodation providers.

“It’s really the secondary markets that keep me up at night,” said Laura Formica, vice president of operations at Homestead U at a conference dedicated to off-campus student housing this week. “Enrollment’s just stagnant, there’s been a ton of new development, and there aren’t the bodies to fill the beds.”


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Formica, who oversees more than 8,700 beds and 200 employees at the national student housing operator, noted that her concerns are “really market-specific,” citing Ohio State University as an example of a still-growing market where the company is shrugging off the impact of new development. The executive said that Mississippi State and Texas A&M also look more promising as there are no new deliveries this year.

Enrollment headwinds

Data presented by Carl Whitaker, manager of market analytics at RealPage, supported this mixed picture. Speaking alongside Formica at the CampusConnex conference held by the National Apartment Association in New Orleans, Whitaker highlighted select university markets that have shown outstanding rent growth in privately owned, off-campus, purpose-built student homes.

Lakeside Student Housing near Mississippi State University. Image courtesy of JLL

Liberty University leads the way with 10.2 percent rent growth in 2019, followed by Washington State University, Brigham Young University, Bowling Green State University and the University of Nevada, Reno. On the other hand, he noted, the University of Mississippi, Oklahoma State University and the University of Louisiana at Lafayette are struggling, with rental declines ranging from 5.6 to 6.6 percent last year.

In many cases, pricing challenges are driven by weak enrollment growth or significant new supply coming to the market. The pace of enrollment growth at 175 universities tracked by RealPage has cooled from the pre-recession norm over the past few years.

Part of the reason is simple demographic math. Whitaker pointed out that in 2018, the total population in the 18- to 24-year-old cohort was down about one million from its 2013 peak of 31.5 million. On the bright side, the proportion of high school graduates that wind up in college continues to trend steadily upwards as it has for the past 30 years, approaching a likely ceiling of about 70 percent.

And a strong economy is inversely related to enrollment growth, so an economic slowdown is expected to bring a modest boost in student numbers. “If the job market is weak, it just makes sense to go back to school,” Whitaker said.

Weathering the storm

Launching pre-leasing campaigns early can help keep student housing operators competitive in challenging times. “That’s been part of our efforts,” Formica said.

“Most of these markets have become very incentive-heavy markets,” she added. “So we’re realistic in talking with our owners and going through the budget process to say, we’ll probably have to spend $300,000 on incentives at Texas Tech this year for lease-up.”

“It’s also hard on the on-site teams, so we’ve just been really transparent with them on the situation and the fact that this is what we’re working through,” she said.