Student Housing: The Recession-Resistant Investment Play?
As the commercial real estate zip line comes to a slowdown, investors are still looking for investment opportunities that will result in healthy ROI. The student housing sector has remained in the eyes of investors as unscathed and recession-proof attracting many to this investment opportunity.
Let’s look at a few reasons why student housing is the recession-resistant investment play.
Student Housing Performs Better in Downturns
Industry experts believe that the student housing sector performs exceptionally during a downturn. When the economy heads south, college enrollment increases. According to the National Center for Education Statistics, in 2010, during the height of the economic downturn, a record 19.1 million students enrolled in a two-year or four-year college or university, which was a 25% increase from 2000. After this, investors began to take notice of the sector and started investing heavily in student housing.
Student housing has been deemed as recession-proof because the market depends on enrollment and when the economy loses jobs, it tends to gain students increasing the enrollment numbers of universities, thus making the student housing properties more attractive.
Investors are Flowing Capital Into Student Housing
At the end of 2018, investors were still closing deals on student housing properties before year end. Investors were on track to spend more than $11 billion to purchase student housing properties in 2018. This is a significant increase from the $8.1 billion in deals that closed in the year prior. Greystone’s purchase of the real EdR portfolio for $4.6 billion greatly boosted 2018’s total transaction amount for student housing.
Yields in Student Housing Market are High
Yields in the student housing sector are one of the strongest and most robust compared to all other commercial real estate sectors. Student housing generally produces higher yields in both IRR and cap rate than conventional multifamily investments. This is another reason why the sector is highly recession-proof.
The Future of Student Housing
Student housing properties generally have few empty beds and rents are continuing to increase. The markets around many universities are facing the challenge of being oversaturated. While there is a solid increase in the activity of constructing new student housing, the sector is not greatly suffering because of it. In 2019, experts expect the student housing market to remain strong. In the current cycle, new student housing deliveries have been built in mid- and high-rise buildings with increasing rents of $1,000 or higher. The capital investment has also increased in this cycle with an increase in institutional owners entering the student housing market due to the spark in development activity and rising rents. According to PREA’s Investor Intentions Survey, 14% of institutional investors intended to invest in student housing in 2018.