The big deal with college beds

By John Della Bella, Lima One

An amazing 61 percent of the nation’s student housing beds are located in the Southeast.

Over the past 20 years, Southern student housing has grown in popularity in large part because of the expansion of colleges campuses across the Southeast. Growth has also been driven by factors such as students from colder climates heading South, friendlier governmental regulations, and positive media coverage of these schools (think college football).

The Palmetto State fits squarely in these trends for student housing growth. In South Carolina, Clemson University ranks 15th among national universities in the number of student housing bedrooms under construction (1,343 bedrooms) and 23rd of national universities in annual rent growth for student housing (8.5%). In Columbia, the University of South Carolina is seventh in the nation in 2022 student housing sales activity volume – at almost $137 million or $96.27 per bed.

What does that mean for people looking to build their real estate portfolios in 2023? Let’s explore the student housing trend and how it can lead to profit.

A Growing Market

Student housing investments saw solid growth in the third quarter of 2022.

The fall preleasing period closed in September with 96.6% of bedrooms at Yardi 200 universities leased, according to Yardi’s National Student Housing Report. In a market where 95% occupancy is considered “full,” this high occupancy rate is great news for investors.

It seems simple, but the lease is the key to profit for student housing investors. Most students sign leases prior to the beginning of the school year, which helps investors accurately calculate cash flow for the entire year.

Student housing leases are usually offered in 12 or 13-month intervals – keeping the property leased year-round. When there are vacancies, proximity to the local university helps investors secure new tenants quickly. In today’s high-occupancy environment with record rent gains, this translates to dependable and growing cash flow.

Meanwhile, annual rent growth was 4.1% as of September. While rent growth was down from the peak 5.1% growth earlier this year, it is still exceptionally high by historical standards. The competition for student housing beds has allowed landlords to continue to grow rents to cover rising costs.

Put these two factors—occupancy and rent growth—together, and it’s easy to see why Investing in student housing and multifamily student properties is a popular strategy. With market fundamentals this robust, it’s no surprise that real estate investors are flocking to student housing for its reliable revenue potential.

Multifamily student housing investing also appears to be among the most recession-proof type of real estate investments, making it an appealing real estate investment strategy.
Post-COVID, most students and educators have returned to campus, which has helped insulate student housing demand from macroeconomic or market-specific shocks by providing dependable cash flow and returns.

The Multifamily Market Comeback

Student housing is one niche in the broader multifamily market, which has been a force to be reckoned with pre- and post-COVID.

Moody’s Analytics CRE reported that rent growth remained strong in Q3 2022 – increasing 10.6% YOY – despite a slight decrease from Q2 to Q3 2022.

Annual rent growth has been slowing for the past nine months, but rents are still growing faster than they were before the pandemic began in March 2020.

As a subset of the multifamily asset class, student housing shows similar trends. Rent growth has been especially strong post-COVID—giving investors increased ability to gain cash flow.

All in all, this continued rent growth for student housing is good news for investors seeking real estate investment opportunities in the multifamily space. Despite increased interest rates and record-high inflation, the multifamily market in general and student housing in particular are still delivering profit.

A Look at the Multifamily Market

The multifamily real estate investment market has remained strong despite record-high inflation and increasing rates. With student housing performing at or even above these high standards, multifamily properties continue to be promising investment opportunities for real estate investors.

Whether you’re looking to capitalize on the booming student housing vertical or to jump into traditional multifamily properties, 2023 could be an opportune year to scale your investment portfolio with real estate.

John Della Bella is the Director of Sales at Lima One Capital. For more information, visit limaone.com.