Student Housing Sector Remains Resilient
Student housing demonstrated its strength in 2022 as students resumed attending face-to-face classes after the COVID-19 crisis. Yardi 200 academic institutions had nearly 97 percent of beds preleased by September, according to its most recent research report. The figure indicates strong rent growth despite the hardship of 2020.
Additional Student Housing
The high interest rate economy and rising inflation had little effect on the student housing market sector. Many prominent North American universities are expecting an additional 31,000 new student bedrooms. For instance, 4,726 units are under development for the University of Texas. The figure is the highest among ten major US universities. The continuing construction reflects the resiliency of the market despite challenging economic times.
Increasing Rental Rates
Rental rates in student housing continue to grow despite uncertainty in the market. Market experts noted that there had been an increase in preleasing velocity and rent growth for student housing over the past year.
Similarly, students have been renting faster than ever before with higher rents. Despite these improvements to asset performance, cap rates remain elevated due to recent increases in interest rates.
Soaring Cost of Debt
The skyrocketing cost of debt has hurt the sector, leading to reduced investment activity and decelerating development. Deals over $300 million are especially difficult to complete. The situation caused investors to shift their attention towards smaller deals under $100 million that offer better financing market liquidity.
Exceptions to the Rule
Nevertheless, there were a few exceptions to the rule. Vylla Title wrapped up a $389.8 million refinancing of student housing properties in Arizona, Nevada, and Texas combined. Universities with solid reputations continue to experience an influx of applications. However, less selective schools or community colleges have been denied the privilege.
Overall, approximately 25,000 new student housing beds will become available in the coming years, which is 60 percent of the typical annual amount. This production won't be enough to meet expectations due to rising enrollment numbers and changing consumer preferences alongside aging existing inventory—all signs indicating an opportunity for outperformance in top-tier markets along with stable or compressed cap rates.
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