Austin, Texas — Data, information, statistics and analysis are the backbone of everything that we do in student housing, began moderator Andrew Layton, chief acquisition officer with Student Quarters, as he kicked off the first panel of this year’s InterFace Student Housing conference in Austin, Texas.
During this panel, the discussion ranged from hard numbers on pre-leasing and rental rates, to transaction actity, property valuations in the current environment and new beds under development.
Pre-leasing and rental rates
As of Monday, April 22, pre-leasing for the 2024-2025 academic year was at 71.7 percent nationally — about two and a half percentage points behind numbers seen last year, according to Charlie Matthews, founder and CEO of CollegeHouse.
“We have seen a little bit of a slowdown as of late. It’s really challenging to follow up a record year like last year with outsized rent growth, strong leasing velocity and demand for student housing,” said Matthews. “But the fundamentals are resilient and showing strong pre-leasing velocity again for a second year in a row.”
Rental rates were set at an average of about $962 per bed nationally, according to Matthews, with the largest concentration of rent growth seen in the Southeast. “This time last year, average rental rates were at $894, and in April of 2022, rates were at $798, so we are continuing to see the trend of rent growth,” said Matthews.
Breaking rental rate trends down further, Matthews noted that a disparity exists between smaller and larger unit sizes. “If you look at studio, one- and two-bedroom units compared to four- and five-bedroom units, you can see there’s a challenge on price point for the smaller configurations,” he said. “Studios are 10 percent behind nationally from a rental rate perspective, and one-bedroom units are 6 percent behind. As we look at rent growth metrics, we see larger growth for larger units.”
Transaction activity
From a transactional perspective, the conversation largely comes down to cap rates. “The rates are killing us,” said Amy Blackman, regional managing director with Apprise. “Buyers are still at the mercy of cap rates and it really impacts buying power on the valuation side and has a lot of implications.”
Last year saw the lowest number of student housing transactions in a decade, according to Blackman, coming off a record year in 2022 that saw the highest transaction activity on record for the sector. And while there was always going to be some offset coming off of a record year like 2023 according to Blackman, the market for transactions is still largely being driven by cap rates.
When looking at property valuations, the main considerations are proximity to campus, overall enrollment trends and the product itself. “One thing we’ve also started looking at very recently, as Charlie mentioned earlier, is diversification of the unit mix,” said Blackman.
“We’ve seen developers recently start to offer double occupancy units all the way up through penthouse units, where they’re really starting to diversify income streams,” she said. “That is really starting to reduce some of the risks that we see in some student assets. It’s also starting to reduce construction costs and risk on that side as well because they’re maximizing profit in what they’re building.”
With returns remaining high in student housing, a lot of buyers of conventional multifamily as making the move over to student housing, according to Blackman. “There’s a lot of long-term value in this sector and we’re seeing more buyers moving into this space because of it,” she said.
—Katie Sloan