BAM Key Details:
- Yardi Matrix’s National Student Housing Report projects another strong year for the student housing market in 2023.
- As of December, 48% of beds at Yardi 200 universities were already leased for Fall 2023, a new record high.
- The strong performance of student housing in an uncertain economy makes it an excellent choice for property investors, particularly those interested in rental properties.
Yardi Matrix® published its latest National Student Housing Report, projecting another strong year for the student housing market in 2023 after wrapping up its best year on record in 2022.
While the effect of interest rate hikes has taken hold in the U.S. economy and led to a decline in multifamily rent, student housing remains, for the most part, unaffected. Student housing tends to thrive in the midst of general economic volatility.
Here are the highlights to keep in mind from the Yardi Matrix® Student Housing Report.
Another strong year for the student housing industry
As of December 2022, 48% of beds at Yardi 200 universities were already leased for Fall 2023, which is a new record high for that time of year. This is up from December 2021’s 16.3%, which was also a record high at the time.
Roughly a third of Yardi 200 universities were more than 50% pre-leased as of December, which is impressive, considering we’re only three months into the leasing season.
Five of those universities were over 90% pre-leased for the fall 2023 school year:
- Texas Christian University
- University of Pittsburgh
- University of Wisconsin-Madison
- University of Tennessee-Knoxville
- Purdue University
Few of the Yardi 200 are struggling to lease student housing for the upcoming academic year.
One example, Portland State University, saw the biggest year-over-year drop in the percentage pre-leased in December—down 10.5% from the end of 2021. But 2021 was a record year for this university. And with 10% of their beds leased as of December 2022, the current pace is consistent with their historical standards.
With over eight months to go before the Fall 2023 semester, assuming this rapid pace keeps up through the spring, Yardi predicts another record-breaking year for student housing.
Rent growth in student housing for 2022–2023
Rent growth for student housing also held steady in December 2022, with 4.7% annual growth.
Rent growth for Yardi 200 universities was 4.7% year-over-year—the highest rate for any December on record. Rent growth for the year reached its peak of 5.2% in June, and the growth rate has stayed between 4.5% and 5% since then. The average rent per student bedroom was $800 in December—up $2 (0.3%) over the previous month.
At competitive universities, especially those with limited supply growth, demand for student housing remains high. With the record high leasing rates this industry is experiencing, properties in this market have seen steady increases in rent.
Last September, rent growth showed signs of cooling. But it heated up again quickly with the start of the new leasing season. Annual rent growth stayed at or above 4.7% for the last three months of 2022.
Thirteen of the Yardi 200 universities saw double-digit annual rent growth in December. Purdue took the number one spot with 22.6% growth. With 91.1% of beds already leased by the end of 2022, Purdue was able to hike rents—and may have even found it necessary to do so.
A few universities experienced negative annual rent growth in December 2022. Bowling Green State University, for example, saw its rent growth decline by 4.3% year over year. On the upside, rents at Bowling Green are still well above the historical norm.
With the momentum gained in both rent growth and pre-leasing activity so early in the leasing season, Yardi expects another banner year for student housing fundamentals.
The new supply pipeline is cooling
The nation’s slowing economy is having a negative impact on new student housing supply. With rising interest rates, the development pipeline for student housing contracted by 2.6% or more than 3,000 bedrooms from December 2022 to January 2023.
The higher cost of debt is taking a toll on the supply of new student housing inventory. At the start of 2023, roughly 50,000 bedrooms were under construction. And Yardi expects a continued slowdown in new student housing starts.
The University of Texas at Austin has maintained its position for having the most bedrooms under construction—with almost 5,000 at six properties. Student housing fundamentals at the university remain stellar, with 59.6% of their beds pre-leased as of December 2022, so they should have no trouble absorbing the new supply. They’ve also had annual rent growth of 5.5%, and, at the time of this report, they have no additional properties in the development pipeline.
Student housing deliveries have also picked up, with roughly 23,000 new student bedrooms delivered at Yardi 200 universities over the past 12 months.
Yardi expects deliveries to taper as properties approach completion and there are fewer student housing starts to backfill development activity.
A strong outlook for student housing investment in 2023
The year 2022 ended with almost $5 billion in sales volume for investors at Yardi 200 universities, just shy of 2021’s peak. The average sale price per student bed also saw a slight drop from 2021’s average to $76,500.
As investment properties go, the student housing sector’s strong performance in times of economic volatility makes it especially attractive in the current climate. While other asset types like multifamily rentals are decelerating, student housing is stealing the spotlight with strong rent growth and record high pre-leasing rates.
Transaction activity will likely slow as interest rates rise, but this sector continues to draw attention as a solid investment.
To learn more, read Yardi’s full National Student Housing Report
Student housing data for their report includes more than 2,000 universities and colleges nationwide, including the Yardi 200—the top 200 investment-grade universities.
Top takeaways for real estate agents
The status of student housing is likely of interest to clients with children who will one day attend college—as well as clients who are interested in investing in real estate, with a particular interest in rental properties.
The strong performance of student housing in an uncertain economy makes it a good choice for those eager to start investing. Be ready to share information like this to help them make educated decisions—and so they’ll remember you when their investments pay off.