The student-housing landscape shifts from year to year with the start of each new school year and its enrollment figures. SoCal Real Estate spoke with Fred Pierce, president and CEO of Pierce Education Properties in San Diego, about the data for the school year that just began, the outlook for student housing this year, and any changes he is noticing in the space.
SoCal Real Estate: What were the reports or data that categorized the enrollment for student housing at the beginning of the school year for fall 2018?
Pierce: Enrollments at major universities nationwide continue to increase at a steady and healthy rate, with fall 2018 enrollments at the Axiometrics 175 (AXIO 175) universities forecasted at 1 percent higher than fall 2017. Generally speaking, enrollment data reporting by U.S. colleges and universities as part of the common data set submitted to the U.S. Department of Education lags by approximately one year. Thus, the most current actual enrollment data available nationwide is for fall 2017.
For the AXIO 175 universities — the 175 student-housing markets they survey — total enrollment for fall 2017 was 4.45 million students, up 1 percent over fall 2016. The AXIO 175 forecast of fall 2018 enrollment increased to 4.5 million students, representing a growth rate of 1 percent. Since the end of the Great Recession in 2013, enrollments at AXIO 175 universities have grown 6.9 percent in aggregate, equating to annual growth of 1.38 percent.
Did the national student housing results pertaining to average vacancy and rent growth surprise you in any way, and did the lease-up activity this year in any way change your understanding of the consistency or regularity of the student housing marketplace?
Nationally, student housing-occupancies (which are figured for the AXIO 175 for privately owned student housing, a.k.a. POSH) for fall 2018 held steady, registering at 95.2 percent. In fact, occupancies have remained very steady over the past five years, ranging from 94.9 percent to 95.9 percent and averaging 95.4 percent. There were no noticeable changes in lease-up for fall 2018 as compared to recent years.
Did you have any particular questions before the start of the fall school year, and did lease-up activity answer those questions or present any unforeseen surprises?
Pre-leasing for student housing has progressively started earlier in recent years, with some markets starting as early as September (for the ensuing academic year). This is requiring student-housing operators to set rates much earlier than in prior years. The anticipation is that this will move the pre-leasing cycle earlier in the season and result in a greater percentage of pre-leasing to occur prior to the end of the spring semester, as compared to years past.
Are you witnessing any changes in the student-housing space?
The most significant changes in the student housing space are: 1) continued consolidation of ownership among the Top 25 national owners; 2) slowing of new deliveries from the mid-50,000s per year in 2013 and 2014 to low- to mid-40,000s per year since 2015; and 3) an ever-increasing flow of institutional and international capital into the space. All of those factors should provide stability in student-housing markets and cap rates.
The outlook for enrollment is very steady going forward, with annual growth in the 1 percent to 1.5 percent per-year range expected for the foreseeable future at the AXIO 175 universities. In fact, conventional wisdom expects enrollment increases to be in the 1 percent to 2 percent-plus range during the next recession, which is projected by most to commence in the next 18 to 24 months. That being said, the strongest and steadiest enrollment outlook is for public universities that play FBS (Division 1A) football. The enrollment outlook for other (e.g., Tier 2) universities is more volatile, with some expecting growth and others fighting to hold enrollments at current levels. Many of those second-tier public universities have resorted to offering in-state tuition to out-of-state students in order to hold enrollment levels. In student-housing investment, the strength of the university really matters.
Low unemployment does impact university enrollments. Generally, when the economy is at full employment (like the current conditions), university enrollment growth — particularly graduate enrollment — moderates as graduating students are hired or potential students remain in the workforce. When unemployment rises, a larger number of graduating seniors continue directly to graduate school as jobs are harder to find. In addition, as the employment market softens, more in the workforce return to college for an advanced degree or continuing education. This was evidenced in 2012 and 2013 when university enrollment growth for the AXIO 175 slowed to 0.9 percent and 0.8 percent, respectively (compared to 2.6 percent annual growth the prior decade), as more jobs were being created. In fact, graduate enrollments at the AXIO 175 universities actually declined by 1.3 percent (2011), 0.7 percent (2012) and 0.3 percent (2013) coming out of the Great Recession as the job market strengthened.
What are recent trends in student-housing construction activity and what is the forecast for new deliveries of student housing in 2019?
New construction continues to slow in student housing, with deliveries for fall 2019 forecasted by Axiometrics at just over 36,000 beds. If that forecast holds true, that would be the lowest volume of deliveries since 39,560 beds were produced in fall 2012. Since 2013, an average of almost 47,000 beds per year have been delivered to the market.
Any difference in today’s student-housing marketplace compared to a year ago?
The impacts from the biggest development of the past year — Greystar taking EdR private — have yet to be determined. Generally speaking, that privatization means the only public benchmark in the student-housing space for the foreseeable future will be ACC. As such, market research and data will be at a premium. It is particularly timely that NMHC has recently announced the formation of the NMHC Student Housing Research Fund, having successfully raised more than $500,000 to endow a student-housing research program going forward. I am honored to have been selected to chair the Advisory committee to the NMHC Student Housing Research Fund, and we look forward to providing a greater amount of meaningful data to serve the industry going forward.