As pandemic-related restrictions and attitudes eased throughout the U.S., the student housing sector began to flourish, with a record-high percentage of beds preleased at major universities seen in 2022. This year, similar preleasing numbers were tallied with rising rental rates.
Here, Law360 looks at three things the student housing sector learned in 2023.
Numbers Show Increased Demand for In-Person Community
Each academic year, beds can be reserved, or preleased, for the following year as early as October, typically garnering average pre-pandemic prelease occupancy rates around 5%, according to RealPage analytics on student housing. But in October 2022, RealPage tracked a 10.5% preleasing rate at 175 universities throughout the U.S.
In September 2023, the academic year preleasing rates finished at a near-record average of 94.4% for those universities, according to RealPage. This just fell short of the record-setting mark of 95.7% tallied at the end of the 2022 preleasing period.
The demand for campus housing has remained strong as rental rates have only continued to increase nationwide. In March, rental rate increases peaked at 7%, only to cool off a bit to 6.1% by September, leaving the average rental cost of a bed at a near-record high of $846, according to Yardi Matrix's October national student housing report.
"Rent growth in the student housing sector continues to be the envy of the commercial real estate industry," Yardi Matrix said in its report.
Jonathan Reyes, president of developer LV Collective's student housing team, said their three student housing portfolios at the University of Texas, Georgia Tech and the University of Florida exceeded 97% preleasing rates in 2023, he told Law360 in a statement. Reyes also pointed out that LV experienced "record-setting" rental growth this year.
"While we're in a tough interest rate environment without a lot of short-term clarity, the overall feeling is very positive," Reyes said in an emailed statement. "Our sector continues to get a lot of attention from investors because it is one of the few asset classes that is holding its value and seeing rent growth."
These numbers have also been indicative of students' desire to return to in-person settings and to make up for lost time during the height of the pandemic, according to Aaron Sobaski, a partner with Sheppard Mullin in California. Sobaski pointed out that many of the college-age students going to universities are the same students who missed out on many in-person high school experiences.
"One of the interesting things I've heard is that everyone wants to live in the dorms and that if they're moving off campus, kids want to be in these upperclassmen dorms that are, for all intents and purposes, an apartment complex that is just college students," Sobaski told Law360.
Growing Importance of Public-Private Partnerships
Sobaski has worked in arranging development deals for housing on campuses throughout the U.S., at places like San Jose State University, University of Kansas and many schools within the University of California system, he said. He recently helped arrange the conversion of a former Fairmont Hotel tower into a 705-room dorm for student housing.
These sorts of arrangements will become more prevalent at colleges, particularly in locations where development is a challenge.
"There's a scarcity of land near campuses and that land tends to be high-priced," Sobaski said. "Private developers are partnering with a university to get a project done. The demand is there, and it's a less risky proposition."
With a finite amount of manpower and financing available and high prices of capital in the current real estate market, Sobaski said universities are going to have to continue to get "creative" with their housing solutions. He pointed out that California State Polytechnic University, Humboldt, has been weighing developing additional student housing on a barge in Humboldt Bay.
"I never would have thought I'd be renting hotels for universities or consider renting a barge," Sobaski said. "But these [public-private partnerships] can be done quicker" than if the university tried to do it on its own.
But Sobaski pointed out that many of these creative routes are only temporary and that long-term solutions will still be needed.
Demand Even Stronger for 2024
The current demand for student housing does not seem to be going away any time soon, according to Sobaski. In Yardi Matrix's November national student housing report, 200 universities had average preleasing rates of 25.2%, blowing past its record-setting October 2022 rate of 10.4%.
"Following last year's surprising start, operators began preleasing earlier this year, and the strong start is more evidence of surging demand in the sector," Yardi Matrix said in its November report.
A total of 14 of the 200 universities Yardi Matrix tracks had preleasing rates of over 40% as of November, a big step up from only two colleges that saw similar clips in November 2022.
Some of the strongest markets have included larger schools like the University of Wisconsin, the University of Arizona and the University of Arkansas, according to Yardi Matrix's November report.
Through the early preleasing period for the 2024-25 academic year, LV has already seen a 10% increase in rent growth, Reyes said. He said he anticipates seeing double-digit rent growth through the remainder of the leasing cycle.
To help reach a broader audience, Reyes said LV will increase its investment in video marketing campaigns to keep up with the changing trends to reach students. The focus will not be just on a "TikTok trend," but rather across multiple platforms to maximize education, entertainment and engagement, Reyes said.
Student housing construction at larger universities has also been strong in 2023, with the University of Texas at Austin developing 6,155 bedrooms and Indiana University-Bloomington, building 4,953 bedrooms, according to Yardi Matrix.
RealPage analytics also saw an uptick in the 2024 academic-year preleasing rates at the 175 universities it tracks at 11.8%. However, RealPage anticipates that the demand will likely taper off after the new year to more "normal" rates, which was observed in early 2023.
--Editing by John C. Davenport.
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