MHN Voices panelists. Clockwise from top left: Greg Faulkner, Humphreys and Partners Architects; Barret Lowell, Harrison Street; David Rose, Student Living CA Ventures; Donna Preiss, The Preiss Co.; Suzann Silverman, MHN. Photo by Michelle Matteson for MHN
Student housing performance indicators have typically shown the asset class to be rather flat performance-wise when compared to others, Donna Preiss, president of The Preiss Co., explained during the webinar. Last year, however, the industry saw spectacular rent growth.
While many property types are still recovering from COVID-19, student housing was not as heavily impacted as other sectors. According to Preiss, by the time the pandemic had made itself known, some 70 percent of the student housing stock for 2019 had already been leased, with momentum continuing. Now, the market is seeing rent growth of upwards of 9 percent.
Preiss agreed, discussing that while the markets will not see as active of a 2023 as experienced in 2022, transactions will still post, creating a more sustainable student housing environment. There are, however, obstacles.
Domestic institutional funds are operating more on the sidelines and lenders are less keen to invest in student housing groups that haven’t already made a name for themselves. “The current development schedule is more friendly to folks that have experience in the market,” said Preiss. “A lot of better financing is coming through relationship banks.” Furthermore, construction costs are a challenge.
Barrett Lowell, managing director and head of education asset management for North America at Harrison Street, said that the issues surrounding construction costs started with supply chain constraints and the inability to get raw materials. Now, certain materials, like lumber, are accessible again. For most materials, however, there is a new, higher baseline price, leading to rent spikes.
“In general, materials are up and not all of them have come back,” said David Rose, chief investment officer, Student Living CA Ventures. There is also the issue of the availability of labor, Rose noted. However, the general lack of labor should ease in the second half of 2023, leading to the moderation of hard costs, said Greg Faulkner, president of Humphreys and Partners Architects.
Building the right type of purpose-built student housing is crucial to the property’s performance, the students’ well-being and the company’s brand. One trend that has prevailed is bed-bath parity, according to Faulkner.
Room sizes are staying on the smaller side with more amenities, common spaces and bathrooms being built instead. “It’s all about de-densification, recreating a smaller bed footprint,” said Rose.
While the number of beds is going down in some communities, amenities are going up. Rooftop pools are constructed in climates where they are expected, clubhouses with a café atmosphere are increasingly popular, grocery vending machines are all the buzz and fitness centers are almost a necessity.
Proptech is also playing a more significant role in the future of student housing with new technologies making changes to social media, websites and even operations. “Students and renters are going to be willing to sign a lease by just doing a virtual tour and not engaging with anyone,” Lowell said.
Rose explained that in terms of the integration of proptech, student housing is leading multifamily. Student communities are already utilizing technology solutions, such as chatbots and operational platforms, that allow for technology to handle a multitude of resident issues.
While the industry faces certain challenges ahead trying to keep up with demand, the panelists agreed that fundamentals have never been stronger. “Nobody is immune to rising interest rates,” said Lowell. Student housing, however, is particularly recession resilient, he explained.
Student housing prices are attractive across the board. “We are relatively affordable right now,” said Lang. On-campus product, owned by universities, has posted a quicker pace of increased rents than purpose-built student housing, while the latter is more amenitized. The affordability component of student housing makes investments in the sector more appealing to Fannie Mae and Freddie Mac, as well as international investors.
“With all of the global unrest, the United States is still the best place to invest,” said Preiss.
“I think all of us here feel pretty good about both 2023 and 2024, and 2024 and 2025 and beyond being a sustained level of growth above those long-term averages, probably with some cool down,” said Rose. “You put it all together and you start thinking: if I am an investor across multiple parts of the residential slices, it is an interesting time to start thinking about adding student to your portfolio”.
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