Unlocking Potential: A Deep Dive into the U.S. Student Housing and Investment Prospects

The U.S. student accommodation industry is a dynamic sector that plays an important role in providing housing solutions for students across the country. As of the latest data, the student housing market size is worth over $10 billion in the U.S. The industry is poised for further expansion, with projections indicating positive trends from 2024 to 2029. With 22 million college students in the U.S., there's a huge demand for rental housing that caters to this demographic. However, the 175 largest universities in the country can only provide housing for 22% of their undergraduates. This undersupply shows that there's an urgent need for student housing. Most college students rent off-campus by bed for a minimum of 12 months. Parents need to guarantee the lease, which helps provide a steady income stream for property owners. 
In order to draw in a significant number of renters, today's student housing needs to be convenient, innovative, and eco-friendly. Convenience means being close to campus because the shortest distance is best to commute on a daily basis. Innovative property owners need to incorporate high-tech shared amenities, intelligent building solutions, co-living spaces, and ESG initiatives to demonstrate sensitivity to the environment and contribute to the health of the community.
The demand for off-campus housing in the U.S. is influenced by the larger student population that seeks alternative housing options beyond on-campus facilities. Moreover, the evolving preferences of students contribute to increased demand, with a rising inclination towards independent living experiences and lifestyle choices that off-campus housing can provide. Other factors, such as privacy and community involvement, also play a role in driving demand for off-campus accommodation. Let's explore some of the other points in detail that influence the demand for off-campus housing in the U.S.

Key Trends of U.S. Student Housing

Investor interest in the sector is still strong in 2024, suggesting that U.S. student housing has a bright future ahead. Several trends shape the market, so investors need to stay abreast of the changing dynamics. Let's look at some of the trends in U.S. student housing.

• The U.S. student housing market is witnessing an increase in demand, driven by a growing of international students. As universities expand their enrollments, there is a need for quality accommodation, creating a favorable environment for investors looking to capitalize on a surge in demand. The United States hosted more than one million international college students, making it the top destination for students pursuing higher education abroad in 2023. 
• In the United States, only 22% of undergraduate students live on campus. This lower percentage is partly due to the fact that there is still a gap between the number of beds available on campus and the demand for them. Therefore, the vast majority of students live in various off-campus accommodations. This preference is because of the growing need of students. Whether students in colleges are freshers or seniors, they value their personal space. Off-campus housing is much more likely to provide that personal space to the students. In fact, around 63% of student housing consists of private rooms instead of dorms.
• Investors should pay attention to the integration of technology in current student housing. Innovations such as smart home features, online leasing platforms, and high-speed internet connectivity are becoming essential offerings. Incorporating these technological advancements enhances the appeal of a property, meeting the expectations of high-quality students.
• The U.S. student housing market has a huge opportunity for investors in 2024. It is expected to see an average occupancy rate of 95% among the nation's top universities, with an expected enrollment of 19.25 million students.
• Sustainability is a rising trend in real estate, and student accommodation is no exception. Investors are increasingly focusing on eco-friendly initiatives, including energy-efficient buildings, waste reduction programs, and sustainable construction materials. According to the latest data, 87% of student respondents agreed that student accommodation should become more sustainable. Sustainability is not only in line with social norms, but it also makes a property more attractive to investors.
• To attract students, investors are enhancing amenities and focusing on creating a holistic living experience. Properties with fitness centers, communal spaces, study lounges, and recreational facilities are gaining popularity. These amenities contribute to the overall lifestyle appeal and can be a significant differentiator in a competitive market. According to an internal focus group, the amenity that's most in-demand among students is strong Wi-Fi, followed by gyms, fitness centers, and study rooms.
• Affordability is a major concern for students, and with rent prices at record levels, it won’t be changing anytime soon. As previously reported, the average cost of renting a bed rose by more than 7% in the first 3 months of 2023 alone. This harsh reality will force many students to look for more affordable off-campus housing options.
• Investors are emphasizing strategic locations that are particularly close to universities. Choosing locations with strong growth potential, accessibility, and a thriving student community is crucial. Properties near campus are well-connected to public transportation, which leads to a higher demand for student housing.
• With the shortage of land, investors are exploring adaptive reuse and redevelopment projects. Transforming existing structures into student accommodation or revitalizing older properties allows for cost-effective investments while contributing to urban renewal initiatives.
• The COVID-19 pandemic has underscored the importance of flexibility and adaptability in the real estate sector. Investors are incorporating features like flexible leasing options, facilities of remote study, and robust health and safety measures to ensure resilience against unforeseen challenges.

U.S. Student Housing Demand and Projection

The U.S. student housing market is expected to grow years ahead, but it’s important to be flexible and adaptable for students. According to the report by the National Multi-Family Housing Council (NMHC), it is projected that student housing will grow from 8.5 million beds in 2020 to 9.2 Mn by 2031, an increase of 734,000 beds or an average annual increase of 0.8% per year.  The largest increase in U.S. student housing demand will come from public four‐year universities. Undergraduate enrollment at four-year public universities is projected to grow by 448,000 beds from 2020 through 2031, with an additional 112,000 projected for graduate enrollment. New four-year enrollment at private four-year universities is projected to be primarily for graduate programs, with an additional 96,000 projected. Public two‐year universities account for a larger part of total enrollment, although growth in this sector has been volatile in recent years. It is estimated that 79,000 additional public two‐year university beds will be needed.

U.S. Student Housing Pipeline

On-Campus and Off-Campus housing facilities are continuing to grow at a consistent pace. Student housing statistics provide some interesting insights in terms of the supply of student housing. For instance, in the southern U.S., colleges and universities typically provide mostly off-campus beds. In the northeast U.S., students can always rely on universities in the region to have more on-campus beds available.
According to the Berkadia report, effective rent growth across the top universities rose 7.9% between August 2022 and August 2023, which is more than three times the rate of market-rate rent growth across the country. The Rocky Mountain region had the highest year-on-year (Y-o-Y) rent growth at 11.9%. Moreover, the report also states that the student housing bed supply projection will reach its highest level by 2025 in comparison to the previous year. Texas/Oklahoma had the highest supply annual change of 62.1% in new housing supply for 2024.

Likewise, other investment and student housing have their share of risks and rewards. On the positive side, student housing has the potential to generate above-average returns and consistent cash flow. Student rental prices remain floating due to an apparent disconnect between demand and supply for purpose-built student housing. With an average occupancy rate of 95%, demand continues to outpace supply. Additionally, increasing construction costs and rising interest rates have added to the supply shortage.
Furthermore, the pipeline shows that student housing projects are constantly evolving and growing. This growth isn’t just due to current demand; it’s also due to projected future demand. Universities and private housing companies work together to develop innovative student housing projects that meet the changing needs of students. The goal is to develop housing solutions that transcend traditional models, providing a range of living options to meet diverse student needs.

U.S. Student Housing Poised To Attract Investors

On the other side, investors are seeing larger and more advanced capital partners entering the space, seeking asset managers who can invest in U.S. student housing and have a proven track record. Student housing property sales in the U.S. are expected to see more institutional and foreign investors this year. The so-called recession-proof sector set records thanks to some of the giant investment acquisitions going on in this sector.
Across the U.S., cross-border capital accounted for 20% of student housing deals from 2017 to 2021, up from 6.7% market share from 2012 to 2016, JLL reported in its student housing annual report. “We’re starting to see a lot of capital from the Middle East and Singapore, and we’re beginning to hear some talk from Latin America as well,” said Teddy Leatherman, Managing Director of JLL’s Dallas-based National Student Housing Capital Markets Team. The US student housing market accounted for $22.8 Bn in investment in 2022. The largest single transaction was the $12.8 Bn sale of ACC to Blackstone.

Some  of the biggest Investment in the U.S. Student Housing Sector

• Blackstone accounted for the largest share of the 2022 deal volume when it acquired American Campus Communities, a student housing operator based in Austin, Texas. The largest deal volume in 2022 came from Blackstone’s paying $12.8B acquisition of American Campus Communities, a student housing operator based in Austin, Texas. American Campus Communities owns 166 properties and manages 38 more for other owners. According to Jones Lang LaSalle (JLL), institutional investors have been steadily increasing their overall allocations, accelerating capital inflows into student housing and attracting more capital from abroad. 
• Landmark Properties announced last year that it had agreed with Manulife Investment Management, a Canadian investor, to construct student housing projects in the United States. In addition, the company announced a $2 billion agreement with the largest sovereign wealth fund in the world—Abu Dhabi Investment Authority—to expand the venture’s student housing portfolio in the United States.
• Global Student Affiliations (GSA), one of the largest global owners of student housing properties, has added five properties to its portfolio in the U.S., partnering with Harrison Street to acquire the properties in 2022. With the acquisition of the properties, GSA will now own over 1,600 student accommodation beds in the United States, adding to its growing portfolio, which now includes 46 properties in 23 states purchased in less than 2 years, according to a statement from GSA.

The student housing market in the U.S. recorded an 8% rental growth, with pre-leasing reaching 85% capacity for F.Y. 2023-24, promising investment opportunities in this lucrative sector. According to Berkadia, student housing sales totaled $22.8B in 2022, with an average unit price of $260k. Altogether, there were 470 properties sold with an average cap rate of 4.87%. The average price per student housing bed in 2022 was $99.937, up 17.9% from $84.791 in 2021. The average national price per bed for U.S. student housing more than 2 miles from campus was $74.089. 

Overall, the bright side of the U.S. student housing market is that it is able to sustain a constant level of demand over time. Robust Investor Interest Indicates a positive outlook for student accommodation in 2024  and it’s expected to only grow in the coming year. There are a number of factors that have contributed to the current condition of the U.S. student housing market, such as tighter competition between property developers and steady yields. Additionally, student housing property sales in the U.S. are expected to see more institutional and foreign investors this year than in the previous 12 months.

To Sum Up, the U.S. Student Housing Market is attracting investors due to favorable market dynamics. Demand for tertiary education is on the rise, there is an undersupply of purpose-built student accommodation, and the investor outlook is compelling. The market’s stability and long-term growth prospects have attracted investor interest, resulting in higher investment inflows. U.S. Student Accommodation is projected to grow at a compound annual growth rate (CAGR) of 6.5%, indicating positive returns on investment. The sector’s resilience and perceived profitability align with the continued demand for student housing, making it an attractive investment option for discerning investors.