Pre-Lease Challenges Persist as Students Continue Wait-and-See Approach

The first few months of the Fall 2021 pre-lease season continue to produce sluggish results as the global pandemic creates uncertainty in the student housing industry.

As of January, about 32.9% of purpose-built student housing beds the 175 core universities tracked by RealPage have been leased for the Fall 2021 semester. That rate falls nearly 7% below the year-ago rate. Though we’re only about four months into the pre-lease season, velocity has been short of previous years in all four months.

At least part of the loss in leasing momentum can be attributed to a reluctance among students and their parents to make commitments for the upcoming school year. Despite colleges vowing to reopen and reconfiguring curriculum to include a hybrid model of online and in-person learning, students report skepticism in the quality of an online education. And parents may be hesitant to financially commit to a lease as the future remains uncertain.

That’s a continuation of the themes from the Fall 2020 leasing season, when performance slowed following the initial U.S. outbreak of COVID-19 in March. The leasing slowdown in off-campus housing was accompanied by a decline of 2.5% in college enrollment for Fall 2020, according to the National Student Clearinghouse Research Center. Enrollment declines were particularly pronounced among first-time college students. About 8.1% fewer first-time students entered four-year public universities last fall and 10.5% fewer entered four-year private universities, which are usually pricier than their state-funded counterparts.

First-time students are mostly new high school graduates, and the unprecedented enrollment declines among that group suggest that price conscious students and parents could be struggling to justify the price tag of a name-brand education when students aren’t getting a typical college experience from virtual classrooms. Would-be new students also appear to be more comfortable delaying the start of their college careers for a year or so until there is some resolution to the COVID-19 uncertainty. For students already enrolled, taking a year off would likely be more disruptive, despite the hardships experienced as a result of COVID-19 safety measures.

With slow preleasing, operators are also experiencing diminished pricing power. Across the core 173 universities, year-over-year effective rent change in January hit just 0.3%, compared to 1.7% in January 2020 and 1.4% in January 2019. Properties within a half mile of campus – typically the star performers – are hurting most, with just 0.1% rent growth in January.

The schools lagging the most in terms of pre-leasing make a clear case for underperformance year over year. Of the schools lagging most severely, they fall into three categories, with some overlap.

First, many on the list of pre-lease laggards are largely considered commuter schools. While these schools generally attract more live-at-home students, that trend is likely more pronounced during the coronavirus pandemic when students can’t justify living on campus when the typical college experience is lacking. The University of Washington, University of Houston, San Diego State and University of Texas at Arlington all attract a lot of commuter students.

Next, several supply hangover schools appear on the laggards list. The University of Oregon has had new supply nearly every year since 2010, totaling over 6,000 beds in the last decade, with another 700 expected in Fall 2021. UT Arlington has received nearly 2,700 new student housing beds in the last three years.

The final category of schools with underwhelming pre-leasing as of January include a few universities heavy on virtual learning components. The University of California system, including campuses at Riverside and Santa Barbara, is offering most classes online. That means students could be hesitant to commit to a lease for next year if they rarely need to be on campus, or that because students are on campus less frequently, they have less opportunity to shop for living arrangements.

Many of the pre-lease laggards for January were also laggards for the Fall 2020 pre-lease season. But even the universities that rank head and shoulders above the national norm for pre-leasing in January are performing in line with or worse than their year-ago rate – aside from three notable exceptions.

In 2020, over 1,100 new beds delivered at Western Carolina University and about 500 beds delivered at the University of Notre Dame. Understandably, both schools are pre-leasing at a faster rate this year without lots of new supply looming overhead.

Reasons behind the increase in leasing at the University of Wisconsin – Madison are less clear. The school, which is over 78% pre-leased as of January, typically sees high occupancy at off-campus properties. Students could simply be signing leases earlier this year to avoid missing out on their preferred living accommodations. Additionally, the school has doled out federal relief funding directly to students impacted by the pandemic, which could be boosting student confidence to commit to Fall 2021 housing.