By now, you’ve likely seen the statistics and read the headlines: an enrollment cliff is headed our way as the number of students beginning their first year of classes at higher education institutions across the country has gone down. But what you might not have heard is that this trend is largely a tale of two of campuses: the larger, public universities versus the smaller, private schools.
Top tier universities are still seeing growth — both from an enrollment perspective and on the student housing development front — while the vast majority of the aforementioned enrollment decline remains concentrated within smaller, Tier 3 markets. So what specifically are the numbers that we’re looking at from an enrollment perspective? And what impact can the industry expect to see from a development and occupancy perspective? Student Housing Business asked a number of industry experts to weigh in.
A Look at the Numbers
Demographic projections for the U.S. suggest that the domestic population between the ages of 15- and 19-years-old will decline each year from 2024 to 2028, according to data from Moody’s Analytics. “Using the most recent high school graduation and college enrollment rates, this equates to a likely total loss of under 40,000 post-secondary students during this time period or an average of about 7,800 potential students per year,” says Thomas Errath, managing director with Harrison Street.
Despite this estimate, population declines have not always translated to declining enrollment historically. “When Generation X entered their college years, the traditional college-age cohort was smaller than it had been previously, but due to the increasing economic benefits of a college education, a greater number of high school graduates enrolled in college,” says Errath.
“As of 2022, college graduates in the U.S. out-earned high school graduates by a margin of roughly 80 percent,” he continues. “The extent to which the employment market continues to place a high premium on a college degree is another factor that will likely influence enrollment going forward.”
And while overall college enrollment has gone down, Meeghan Clay, content manager with Yardi Matrix, notes that a redistribution of enrollment would be a better classification for what the industry is seeing.
“Applications are surging at competitive universities with strong name recognition, such as the Power Five conferences,” says Clay. “These universities typically have a concentrated stock of investment-grade, purpose-built off-campus, which has fared exceptionally well for the student housing industry. On the other end, enrollment has been falling drastically at smaller universities and community colleges, and that is where we’re seeing a lot of consolidation happen.”
Current enrollment growth is primarily concentrated in the Southeast, Midwest and Southwest regions of the U.S., according to Charlie Matthews, founder and CEO of College House. “Most of these schools — and the surrounding markets — fit the description of being either the primary public university in the state or a top-tier private school,” he says. “The universities where we are seeing declines in may be part of the public state university system, but they are not their state’s marquee campus, per se.”
Many universities also relaxed admissions requirements as a result of the pandemic — another factor which has impacted enrollment. Not surprisingly, this has largely been to the benefit of larger, established universities, according to Carl Whitaker, director of research and analysis with RealPage.
“This is just one example of how the pandemic effectively pushed demand into select campuses,” he says. “From that perspective, some schools have received a short-term boost in their enrollment figures. It might be difficult to maintain that pace of growth due to demographic headwinds, however. Still, it’s probably fair to assume that the growth we’re seeing will continue at select institutions, while the pool of campuses that struggle to grow at today’s pace also increases.”
Jason Doornbos, executive managing director of development with Landmark Properties, echoes this sentiment, noting that for-profit and smaller private schools have felt the brunt of negative enrollment trends. “This is mostly driven by the cost of attending these schools, the average debt these students graduate with, and their job and salary prospects post-graduation,” he says. “We have not seen negative enrollment at the universities we target for off-campus development — large public and top private universities with robust fundamentals.”
Developmental Impact
Enrollment is just one of many factors that can impact a student housing market. “Some markets still have a latent demand for 3,000 additional beds,” says Brent Little, president and CEO of Fountain Residential Partners. “A 500-student decrease in enrollment over time is not going to significantly decrease the need in that market.”
“Also, you must take into account housing obsolescence,” says Little. “A market may have enough housing for the student population, but if that housing is inferior in quality or location, there is still a need regardless of any nominal increase or decrease in enrollment.”
Little points to Austin, Texas, as an example of this trend. “Newer, nicer housing is being created in that market closer to campus, and dedicated student housing that was built 20 years ago along Riverside is now being torn down and redeveloped,” he says.
For a variety of reasons, the past two years have seen a year-over-year decline in deliveries on the development front, according to Whitaker. “The logistics of permitting and building during the pandemic caused a pullback in developer appetite,” he says. “But there was also a group of campuses that even prior to the 2020 period were teetering on overbuilt. So with many campuses effectively at their capacity in terms of development, it made sense that construction would experience a brief hiatus.”
Development activity for 2023, however, has increased. “There are still some development opportunities out there and developers are targeting the schools that offer such opportunities,” Whitaker continues. “The difference today versus 10 years ago is that site selection is more important than ever as good project sites have become less readily available.”
Current economic conditions, according to Clay, are having a greater impact on new student housing development than enrollment, with new supply pipelines contracting due to rising interest rates.
“The development pipeline for the top 200 universities in major conferences nationwide — including planned, prospective and under-construction communities — decreased by over 3,000 beds from December to January, representing a 2.6 percent contraction,” she says. “This, paired with the closing and consolidation of many [smaller] universities nationwide, will lead to more competition for housing, ultimately buoying rent growth and speeding up the rate of pre-leasing.”
Yardi Matrix forecasts show a slight increase in bed deliveries at these 200 universities in 2023 as projects already underway deliver, notes Clay, but there will be a moderation of new deliveries in the next couple of years as fewer projects are in the pipeline.
But opportunities for development will continue to exist at growing public universities with significant in-place or growing enrollment, according to Errath — particularly in markets where a new development can provide superior location, a desirable amenity package and value to students.
“Declining enrollment shouldn’t have much of an impact on student housing development since the largest declines have been at smaller schools where investment in student housing hasn’t been prominent,” adds Clay. “In fact, the shift of enrollment to a smaller pool of large universities has created a greater need for dedicated off-campus student housing at those institutions. Yardi Matrix is seeing record-breaking leasing activity and rent growth, with many universities struggling to house their existing student population.”
This uptick in development is also being seen on-campus, according to Joe Winters, vice president of Brailsford & Dunlavey. “Since campus housing is a major contributor to any institution’s student experience, colleges and universities are intensifying their efforts in delivering a quality, compelling residential experience as a means to compete for the decreasing pool of high-school graduates,” he says.
Winters notes that he has also seen a greater interest in living on-campus following the COVID-19 pandemic. “With rents rapidly escalating in the multifamily sector and across properties surrounding university campuses, all signs point to a heightened focus on new development and renovation on-campus to help schools achieve their enrollment [and revenue] targets in the future,” he says.
Overall, the impact of enrollment trends on development is multi-faceted, according to Matthews. “Universities that are growing are going to be of interest to developers given the supply and demand imbalances we are seeing,” he says. “And although affordability continues to be a topic of discussion, the lack of supply in these markets may play into the developer’s favor, as they may have an easier route through planning boards given the support that could come from city officials due to an undersupply of off-campus beds.”
“Markets that are seeing a decline in enrollment may not see any sort of development unless the university changes course,” he continues. “Ultimately, despite enrollment from a macro perspective being down, the student housing space has some of the strongest fundamentals of any sector of commercial real estate and development will continue to happen.”
—Katie Sloan
This article was originally published in the January/February 2023 issue of Student Housing Business magazine.