After Abnormal Year in Student Housing, What’s Next for Pedestrian Assets?

The usual leaders of the student housing space – properties within a half mile to campus – experienced drastic performance changes throughout the last 18 months. As the student housing sector moves beyond pandemic-induced performance shifts, will these pedestrian assets regain star status?

The pandemic caused some bumpiness in the Fall 2020 student housing leasing season but Fall 2021 reported a return to stability toward the end of the pre-lease season. After hitting cycle-lows in occupancy and rent change, student housing enjoyed one of its best-ever years as demand returned in a big way.

However, the quick re-stabilization and subsequently solid performance readings in Fall 2021 didn’t negate all ripple effects on performance trends. Student housing assets within a half mile to campus, also called campus-adjacent or pedestrian assets, underperformed by the widest margin of all other assets, regardless of distance.

Pre-pandemic, pedestrian assets claimed star status for both rent growth and occupancy. In Fall 2020 and Fall 2021, these assets lost their rent growth leader status and drastically decreased the margin by which they led in occupancy.

Similarly, occupancy rates were typically more stable in campus-adjacent properties pre-pandemic. But performance in that subset has seen occupancy rates average 3.7% less than its pre-pandemic norm. Comparatively, properties within a half mile to one mile averaged 2.1% less, while properties one mile or greater from campus average 3.4% less than pre-pandemic norms.

One factor working against the pedestrian assets is the price premium. In recessionary periods, many households cut costs, and it was likely hard to justify spending $150 or more per month to live near a campus that wasn’t fully operational. With many of the on-campus amenities that make living nearby worthwhile becoming limited or closing altogether, students appeared to be more attracted to less expensive leases farther from campus. As a result, it’s likely that some students were more cost-conscious the past two leasing seasons and may have chosen to rent more affordable product.

Operators did take note of this challenge, however, and pulled back on rent growth in closer-in product. Before the national pandemic-induced downturn, rent growth in the properties less than a half mile to campus were logging rent growth at 3.1%. In Fall 2020 and Fall 2021, operators pulled back on that increase, though rents are still rising by 2.4%. The properties located within a half mile to one mile of campuses averaged stronger rent growth at 2.6%, about in line with what that product was producing before the pandemic shook things up.

In addition to price premiums, that half mile to campus radius has seen far more construction of late compared to other geographies. Pedestrian assets have regularly claimed 60% to 80% of total annual supply since 2014. Other distances tend to see a fraction of the supply volumes closer to campus.

The biggest tailwind for campus-adjacent properties is demand. Even some of the most aggressive supply periods have seen solid performance as long as there is enough demand to offset supply pressure. Demand has generally kept pace with supply in campus-adjacent properties over the last few years, but the stakes are higher with such prolific supply consistently delivering.

From a student’s perspective, living near campus is arguably the most valuable amenity. As a result, it’s probably best to view the past 24 months as a strictly pandemic-driven trend as opposed to a true shift in the preferences of student renters.

The premium to live near campus may continue to face a few more headwinds than it did pre-pandemic. However, as the lingering impacts of the pandemic wane and challenges of living far from campus persist, these closer-in properties are likely to regain their real and perceived value.