This article is the fourth installment in a series that explores the student housing sector. Previous articles have covered topics such as debt and equity analysis, investor interest, and a comparison between student housing and multifamily properties.
Many experts are optimistic about the outlook for student housing in 2024-2025, citing strong preleasing numbers and increasing enrollment rates. However, Connect CRE spoke with industry professionals to gain deeper insights into potential challenges facing this market in 2024.
Capital Market Challenges
It comes as no surprise that liquidity and capital remain major concerns for the student housing sector. Mitchell Korte of Subtext noted that this market faces similar challenges to other commercial real estate sectors when it comes to factors like interest rates and market volatility.
Andrew Layton of Student Quarters also highlighted an ongoing gap between buyer expectations versus seller expectations as another challenge facing this industry. However, he believes these differences will eventually be resolved by mid-2024.
Parker Champion from Champion Real Estate Company emphasized how much activity within this sector depends on actions taken by the Federal Reserve. He predicts an increase in activity if interest rates decrease.
Sean Baird of Colliers pointed out potential difficulties with obtaining debt financing throughout 2024 but remains hopeful that improving performance metrics will lead to increased transaction volumes later on in the year through his role leading up their National Housing Group division at Colliers Senior Vice President .
Brent Little from Fountain Residential Partners mentioned how continued rent growth may help offset any distress caused by current economic conditions within asset management . Additionally , Baird noted how high collections statistics among students due to parental guarantees have helped keep rental payments steady even during times like COVID-19 where universities were forced into remote learning situations .
Construction Hurdles
Another issue discussed was supply/demand imbalances resulting from delays or cancellations due primarily because there isn’t enough construction labor available . Eric Gould with PMA explained contractors struggle finding skilled tradespeople while Eric Gould with PMA explained that general contractors struggle to find skilled tradespeople and even when there is contingency or allowances available for schedule acceleration, it’s becoming increasingly difficult to get the labor force to work extra hours or weekends, despite getting paid for premium time.
The Future: Continued Strength
When asked about the outlook for student housing in 2024, experts predict stability and growth. Enrollment rates are at an all-time high which helps drive demand within this sector. Gould also noted how students paying tens of thousands of dollars in tuition expect quality living accommodations rather than outdated complexes with deferred maintenance issues.
Korte believes that despite market volatility and uncertainty surrounding interest rates , strong fundamentals such as enrollment numbers will continue to make student housing a top-performing asset class compared against other real estate investment opportunities .
RealPage data shows that as of January 2024, nearly half (49%) of beds at core universities have already been leased out . Baird added how preleasing activity has started off strongly for the upcoming school year with some markets seeing rent increases over 20%.
Layton cautioned about potential pullbacks in rental rate growth due mainly because we’ve seen three years consecutively where rent grew robustly . However he still expects above-average performance throughout most markets but not necessarily double-digit increases like previous years .
Overall though , experts remain confident about continued strength within this sector going into next year thanks largely due its solid fundamentals. Little from Fountain Residential Partners mentioned multifamily properties being one best sectors overall while specifically noting student housing’s success among institutional investors such as KKR Blackstone Angelo Gordon.
In conclusion Layton commented on his portfolio saying “I have a lot stressors life” but doesn’t worry much regarding his investments’ performance given current conditions facing these assets.
