Why Student Housing Scores High Marks
Supply and demand imbalances at big schools are fueling investment and development interest.
After negotiating elevated supply a decade ago and the more recent disruption of the pandemic lockdowns, student housing investors are as bullish as they’ve ever been on the sector’s prospects. Despite a dip in the population of college-aged kids relative to the massive Millennial cohort, favorable supply and enrollment dynamics are fueling sustained net operating income growth at properties across many flagship universities in the U.S.
Against that backdrop, investors from more challenging real estate sectors continue to rotate into student housing in pursuit of better yields. Unfortunately, the interest rate environment remains an obstacle to buyers and sellers agreeing on price, leaving a lot of would-be investors on the sidelines.
“Interest rate volatility breeds inaction, and everyone is sitting on their hands wondering where the cost of capital is going to settle,” said Travis Prince, executive managing director of capital markets at Cushman & Wakefield. “It has been a slower start to the year than we had hoped, but we’re expecting velocity to pick up.”
What’s more, buyers of existing projects and developers alike are primarily focused on a narrow band of markets—namely, those that feature big universities that are enjoying healthy enrollment growth, noted James Wilhelm III, chief development officer for American Campus Communities. In January, the firm opened xučyun ruwway Apartments, a graduate student housing project that it developed in partnership with the University of California in Berkeley.
“We are seeing increased competition from new institutional players who are seeking alternatives to multifamily and are drawn to student housing’s more favorable cap rate dynamics,” said Wilhelm. “However, disciplined underwriting is essential to ensure that projects align with demand and to avoid oversupply.”
Sluggish sales
In 2024, 138 student housing properties totaling nearly 73,900 beds traded hands, according to Yardi Matrix data. Dollar volume for the year totaled $5.2 billion, an improvement over 2023’s $3.4 billion, but still significantly behind the roughly $10 billion in student housing sales volume recorded in 2021 and 2022.
Investors who are able to score acquisitions are often accepting negative leverage, which is an initial yield that’s lower than the cost of capital. That’s particularly true of well-located student housing properties in development that will house students for the first time the following fall, according to Scott Clifton, a JLL Capital Markets managing director.
Those assets tend to fetch the highest prices amid strong preleasing trends and expectations that rent growth will lift investors out of negative leverage in relatively quick fashion. Students are already beginning to sign leases for the 2025-2026 school year, for example, so investors have an estimate of revenue when the leases end in July 2026, noted Clifton.
“There’s a path forward to positive leverage, and that’s generally what many investors are looking to solve,” Clifton said. “You tend to see a pretty good rent pop after the inaugural year because 35 percent of students typically renew their leases.”
Plus, unlike the conventional multifamily market, which has seen some distress emerge as a result of negative leverage deals a few years ago, student housing owners largely remain financially sound, added Max LaVictoire, a managing director of investor relations with Landmark Properties. In 2024, Landmark completed $3 billion in student housing transactions and reported $4.6 billion in construction volume.
While overall college enrollment is down from a decade ago as the number of college-aged kids has declined, the big state and private schools continue to add students, shared LaVictoire. Indeed, enrollment at 92 universities increased 1.8 percent in the fall of 2024 vs. 0.2 percent a year earlier, according to Yardi Matrix, which tracks 200 public and private flagship universities.
“The schools we’re targeting offer a very strong value proposition to students, and they are taking market share from small, for-profit or private liberal arts schools,” LaVictoire pointed out. “As this demographic headwind we’ve been facing goes neutral or even turns positive, that should be good for continued enrollment growth.”
Supply in check
Expanding enrollment has also fueled rent growth. In the 2023-2024 leasing season, the average student housing lease rate increased 6 percent, a year-over-year decline of 60 basis points, according to Yardi Matrix data. Still, rent growth last fall exceeded 10 percent at many schools, especially in the Southeast. Lease rates grew 21.3 percent at the University of Tennessee, for example, and 19.4 percent at the University of Mississippi, the data showed.
“Student housing has seen some of the strongest rent growth of any property sector in the last few years,” reported Tyson Huebner, director of research for Yardi Matrix. “Part of the story is that there has been a resurgence in enrollment at many of the large schools where institutional investors are typically focused.”
Student housing construction seems to be slowing. For, the Yardi 200, a data set that includes more than 2,00 universities and colleges, 37,035 units were delivered in 2024 (3.9 percent of total inventory). In 2025, 29,457 units (3 percent) will be delivered, and new deliveries stay around that level for the rest of the decade. For most years going back to 2010, annual new supply exceeded 5 percent. It peaked in 2013 at 10.4 percent.
Oversupply risk tends to be greatest in markets that have witnessed a surge of conventional multifamily development, according to Huebner and Mark Schundler, executive vice president of investment at Campus Apartments. Among others in that boat are the University of Texas in Austin, the University of Central Florida in Orlando and Arizona State University in Tempe, Yardi Matrix reported.
“College-town markets are generally outperforming urban markets because they are less affected by the wave of multifamily supply,” Schundler pointed out. “Sun Belt markets, particularly those serving state flagship universities, are also experiencing enrollment growth. Taken together, these factors have created a very attractive landscape for new investment within the sector.”
Riding the cycle
Student housing investors are also seeing opportunities at schools that before and after the pandemic were struggling to increase enrollment and therefore weren’t considered viable development markets. But now those colleges are benefiting from increasing enrollment, especially as some of the largest universities have tightened their acceptance rates even as enrollment grows, observed Brandt Stiles, founding partner & co-CEO of Subtext.
“As schools continue to see enrollment increase, the imbalance in supply and demand is causing rents to creep up to a point where new construction is supported,” explained Stiles. “That’s creating opportunities, and it’s where we’re focusing a lot of our efforts.”
