Is Student Housing Finally at a Turning Point?

Student housing operators must have breathed a collective sigh of relief in April. Or maybe they were just out of breath from processing all the signed leases that came through that month.

Either way, they’re finding that the pace finally picked up after months of lethargy that came as students dropped their signing pens and sat on their hands until university administrators provided some clarity around their campus’ COVID-19 plans. With all student housing performance metrics showing some improvement in April, it’s probably time to ask whether student housing is finally at an inflection point for the pandemic era.

Before jumping into 2021 performance, however, it’s important to understand last year’s leasing environment.

Uncertainty Suppressed Fall 2020 Leasing

Fall 2020 leasing activity at off-campus student housing properties was holding in good shape prior to the arrival of the pandemic. Pre-lease occupancy was consistently above the previous year’s rate, and rent growth was solid by student standards.

But the pandemic was a true black swan event, and in its wake leasing velocity plummeted. Rent concessions became much more prevalent, and operators began locking rents at the prior year’s rates. Perhaps more troubling, in-place occupancy declined after last March as campuses shut down almost overnight and students moved back home to finish out the academic year. Enrollment, especially for international students, was suddenly in jeopardy. Student no-shows became a very real concern.

By the start of the Fall 2020 school year, pre-lease occupancy was at its weakest since the Great Recession and rent growth was barely positive.

Diminishing momentum through the back half of Fall 2020 carried over into the first half of the Fall 2021 leasing season. By March 2021, pre-lease occupancy fell further behind, barely reaching 48%. That’s a full 10% below the prior year’s rate.

Crucial Rebound in April 2021

Fast-forward to April 2021 and improvement is palpable. Students, encouraged by the prospect of fully reopened campuses, signed leases last month in numbers not seen since before the word “coronavirus” became part of the public lexicon.

Between March and April, pre-lease occupancy at off-campus housing increased nearly 10%. That was the best monthly improvement in the pandemic era and among the best in more than three years.

Rent growth improved too. As of April 2021, annual effective asking rent growth came in at 0.4%. Not only was that up from a 0.2% cut in March, but that March-to-April swing was a three-year high for monthly growth.

Substantial improvement wasn’t isolated to a handful of schools either. It appeared to be more of national occurrence, as more than a third of the nation’s campuses saw pre-leasing rates improve by more than 10% between March and April.

Signs of What’s to Come

The data seems to support overall improvement for student housing fundamentals – a trend that generally echoes broader, improving sentiment among Americans hopeful for a return to their pre-pandemic way of life.

For those hopeful Americans who are college age, reports abound of an increase in college applications as students anticipate a more normal campus life when classes resume in the Fall. That anticipation stems from announcements by several universities of a return of full capacity, in-person classes and by extension, extracurricular activities such as sporting events and social clubs for the Fall 2021 year.

Even before April’s numbers gave reason for increased optimism, there were signs that the U.S. student housing market could be in for turnaround. RealPage research found that many of the nation’s top performing campuses were among the first to announce fully on-campus learning. When schools green light a more normal Fall semester, performance rebounds. Large schools that were early to announce in-person classes for Fall 2021 – such as Clemson University, Virginia Tech and the University of Georgia – are already 80% pre-leased.

And there’s an argument to be made that there is potential for an oncoming surge in leasing. No-show students from Fall 2020 could return this year and further boost Fall 2021’s prospects. And the international enrollment picture is coming into focus too. The recent announcement that the U.S. embassy in China has resumed visa processing shows that international sentiment for U.S. student housing has improved. The tight turnaround required to process visas in time for school may preclude a significant boost for Fall 2021, but it serves as yet another indication of an inflection point.

But even with prospects being a little rosier now than in the winter, some uncertainty remains. Any number of influences could shift and slow the newfound momentum. But for an industry that has been sorely in need of some positive news, the April performance readings should be taken as a win. Indeed, investors seem to have keyed in on this potential for improvement. Despite the otherwise grim economic backdrop, student housing investment volumes remain within 10% of their pre-pandemic level.

Only hindsight will tell if April’s improved fundamentals were just a blip on the radar, but that looks less and less likely as other indicators emerge. Nevertheless, the student housing industry should welcome this recent news with glee.