Investors Pour Billions Into Student Housing As Rent Growth Outpaces Apartment Market

As college students head back to school, they aren't the only ones scoping out new opportunities on and off campus.

Major real estate investors have been marching into student housing, drawn to the sector by its higher rent growth than traditional multifamily and its “recession-proof” assets, investors, brokers and researchers told Bisnow. Investors are especially drawn to student housing markets in the Sun Belt states that have seen the highest rent growth and enrollment increases.

With investors flooding into these markets, there are concerns about how it will affect the worsening housing crunch that many college campuses are facing as more students sign up for classes. 

“Kids want and need to go to school during good economic times and bad economic times,” Rob Harper, president of investment giant Blackstone Real Estate Income Trust, told Bisnow. “It is unique to be able to invest in a sector that has such solid demand fundamentals through good and bad economic times. It’s a characteristic you don’t see in all asset classes where we invest.”

Last year, BREIT acquired American Campus Communities for $13B, one of the largest acquisitions in commercial real estate in recent years and a sign of the growing attraction to student housing. In a BREIT investor update last month, it said it was "redeploying" $3B into its student housing arm for development and acquisition opportunities.

The off-campus student housing market has seen a red-hot year. Nationwide rent growth averaged 7.1% in July, the sixth straight month above the 7% mark after the previous four years saw less than 5% growth, according to a Yardi Matrix report.

Large state schools including Arizona State University, Purdue University and the University of Arkansas saw the highest rent growth at over 20%, according to the report. 

“In all the top markets, you see very strong occupancy and very strong absorption that's occurring,” said Doug Ressler, senior research officer at Yardi Matrix. “That means if you build it, they will come.”

The rise in attraction for the asset class came out of the pandemic as other sectors like office began to struggle and as macroeconomic pressures created more pain, brokers said.

"We're seeing a lot of investors also coming out of retail or office or other product types that aren't performing as well and investing in student [housing]," said Teddy Leatherman, managing director of the Dallas branch of JLL’s national student housing capital markets team.

The sector has also benefited from strong supply-demand fundamentals, as many schools have seen rising student populations but a lack of new housing construction. 

“We are seeing robust demand for our high-quality student housing communities evidenced by continued strong occupancy and earlier leasing velocity than prior years largely due to enrollment growth and a lack of new supply in most of our markets across the U.S.,” an American Campus Communities spokesperson said in a statement to Bisnow.

While student housing rents have been growing at a rapid pace, apartment rents have seen a slowdown coming off of record highs in previous years. 

At the beginning of the summer, asking rents for multifamily properties rose 0.4% month-over-month and 1.3% year-over-year, which marked a deceleration from double-digit growth the sector saw years ago, according to Yardi Matrix’s June Multifamily National Report. This has shifted the leverage from landlords to tenants as rent growth continues to slow.

“In multifamily, we're starting to see some month-over-month rental decline, whereas with student housing, we saw outsized rent growth from this academic year and occupancy increase,” Leatherman said. “Because of those two factors, student housing is a safer bet for a lot of investors.”

The types of investors entering student housing and the kinds of properties they are drawn to have changed in recent years. Jaclyn Fitts, co-lead of CBRE's national student housing team, said that big investors have been gravitating toward luxury properties in major markets.

“The transaction volume has picked up year-over-year, just as there have been more institutional investors in the space,” Fitts said. “There's been this move from the garden-style, nonpedestrian assets, which are the first kind of generation of student housing, to closer, pedestrian campus high-rises, very luxurious, much more expensive and very much higher total transaction dollar.”

The 275 student housing properties sold in the U.S. last year marked the highest transaction volume ever recorded, according to CBRE, and the total investment surpassed $10B for the second straight year. These totals don't include entity-level deals like the ACC acquisition. 

Investment in the first half of this year was down from last year's pace due to the effect of rising interest rates on the capital markets, according to CBRE, but it found a shift in the types of investors buying into student housing. In the first half of 2023, investment funds made up 52% of the transaction volume, up from 12% in the second half of 2022. The share of acquisition from universities, public REITs and other institutions all declined. 

Leatherman said there has been a rise in foreign investment, with these investors looking to enter the multifamily space but wanting safe bets like student housing.

“There's never been more capital targeting the student housing space,” Leatherman said. “That's coming from foreign capital players, mainly from the Middle East and Asia. A lot of domestic groups are looking to enter the student housing space because our fundamentals have never been better and because every lease has a parental guarantee."

Blackstone's ACC has already begun two major student housing projects as part of its $3B development pipeline.

Arizona State University cleared the way for ACC to sign a ground lease to build a $54M, 507-bed student housing development on the university’s West Campus, the Phoenix Business Journal reported. The project will help accommodate the university’s plans to triple enrollment on the Glendale campus from 5,000 to 15,000 students.  

ACC is also working on a 761-bed housing development called Albany Village at the University of California, Berkeley, designed for single graduate students without children. The development, which is being offered at 30% below market rents, will triple the supply of the university’s housing for graduate students.

UC Berkeley came under fire in January for its $4B investment in BREIT, with union leaders arguing the deal will exacerbate rents and worsen the region’s housing crisis, The American Prospect reported.

Berkeley this month saw 10.4% rent growth across 815 student housing beds, according to RealPage data shared with Bisnow. The city has seen a significant rise in new housing built and permitted, with 900 new homes approved last year, marking the highest level since 2001, Berkeleyside reported. The growth is fueled in part by the demand for student housing, with the majority of new projects catered to students and being developed near campus.

“Developers are seeing that,” Ressler said. “They see the gaps in terms of the new supply as needed, and that really sets them to look at development in those particular markets.”

As students begin to come back to school, the conversation about where students will be housed has taken center stage on some campuses that are seeing high enrollment with not much new supply.

The issue has hit most corners of the U.S. Private universities like Boston University and Northeastern University saw record enrollment rates last year, with many Boston students gravitating toward off-campus apartments, further squeezing the city’s apartment availability.

“Schools that don't have the deep pockets as some of the schools in Boston will often rely on the off-campus student housing as that sort of umbrella of housing,” Clara Wineberg, who serves on the Urban Land Institute’s Student Housing Product Council, told Bisnow last year. “There is certainly an emphasis on wanting to create more.”

In Miami, students are faced with a competitive and expensive off-campus housing market, with available units dwindling especially as fraternities and sororities pass down housing to incoming members, The Miami Student reported.

In the Midwest, Purdue University has seen a big impact from its high enrollment, with close to 0% vacancy in Greater Lafayette, Indiana, due to the lack of on-campus housing that has left thousands of students to look off campus, according to a student housing report from the county government. 

Purdue President Mung Chiang rang in the new school year last week with an address about the school’s efforts to house students, with 1,900 new beds approved as the school saw record enrollment this year. Chiang said he was confident the new housing projects would help mitigate the housing needs in the city, the Purdue Exponent reported. 

“I wish that buildings could be constructed overnight," Chiang said.

UPDATE, AUG. 29, 11:10 A.M. ET: This story has been updated with additional details on ACC's Albany Village development.