The past year has brought tough times for student housing investment sales due to unfavorable debt markets. However, 2024 offers a brighter outlook if debt conditions improve as predicted.
Fred Pierce, President and CEO of Pierce Education Properties, a privately held owner and operator of student housing, provided his commentary on the financial marketplace and state of student housing in a recent Q&A.
Student Housing Market Highlights:
Investment sales
Though low in 2023 due to unfavorable debt markets, investment sales are expected to rebound in 2024 with improving debt conditions.
“The investment sales market in student housing this year, much like all of commercial real estate, has not been very voluminous,” says Pierce. “In fact, some are expecting perhaps 20% of the volume that has been realized in recent years.”
A positive area for loan assumptions is in the places that didn’t look promising in previous years, but have now become attractive in the current market. According to Pierce, 80% of the deals that Pierce Education Properties are underwriting in 2024 will involve a loan assumption.
Debt markets
Debt markets were challenging in 2023 with high interest rates, but potential rate reductions offer a positive outlook for 2024.
“The debt markets have been the subject of the year 2023 for sure,” says Pierce. “In commercial real estate, we've all enjoyed real estate interest rates being at almost zero for decades. And quickly over the last 18 months, those have skyrocketed to now be over 5 percent and near about 5.25 percent”
According to Pierce, that has taken people's variable rate loans and made them triple or quadruple what they were just a year ago. However, the fixed rate debt markets are now below 4.3% as of early December—coming down almost three quarters of a percent.
RELATED:
- October had fastest start ever for student housing preleasing
- Student housing preleasing continues to grow at record pace
- UC Law San Francisco’s newest building provides student housing at below-market rental rates
Development
The “bright light” in the student housing market outlook is that development has slowed down. As lenders have gotten more conservative, developers have found it more difficult to build projects to meet their return expectations.
“The delivery of new inventory this year was below 40,000 beds—the lowest it's been in about 10 years,” says Pierce. This has positively impacted rent growth.
Leasing
Early indications suggest a positive outlook for 2024 with high pre-leasing rates and rent growth surpassing last year. Just 3 months into the 2024 leasing cycle, we're already matching the robust pace of last year with pre-leasing at 42 percent.
“Student housing is a real bright spot in the commercial real estate sector today, and it starts with pre-leasing,” says Pierce. “As a result, there was strong rent growth and it was over 10% for the year.”
Overall
Pierce suggests we’re looking at a “return to normalcy” in the second half of 2024.
“It's going to take some improvement in the debt markets, but there is a strong outlook for investment sales in the coming year.”
Related Stories
MFPRO+ News | Oct 6, 2023
Announcing MultifamilyPro+
BD+C has served the multifamily design and construction sector for more than 60 years, and now we're introducing a central hub within BDCnetwork.com for all things multifamily.
Contractors | Sep 25, 2023
Balfour Beatty expands its operations in Tampa Bay, Fla.
Balfour Beatty is expanding its leading construction operations into the Tampa Bay area offering specialized and expert services to deliver premier projects along Florida’s Gulf Coast.
Affordable Housing | Sep 25, 2023
3 affordable housing projects that serve as social catalysts
Trish Donnally, Associate Principal, Perkins Eastman, shares insights from three transformative affordable housing projects.
MFPRO+ Blog | Sep 21, 2023
The benefits of strategic multifamily housing repositioning
With the rapid increase in new multifamily housing developments, owners of existing assets face increasing competition. As their assets age and the number of new developments increases seemingly day-by-day, developers will inevitably have to find a way to stay relevant.
Multifamily Housing | Jul 31, 2023
6 multifamily housing projects win 2023 LEED Homes Awards
The 2023 LEED Homes Awards winners in the multifamily space represent green, LEED-certified buildings designed to provide clean indoor air and reduced energy consumption.
Adaptive Reuse | Jul 27, 2023
Number of U.S. adaptive reuse projects jumps to 122,000 from 77,000
The number of adaptive reuse projects in the pipeline grew to a record 122,000 in 2023 from 77,000 registered last year, according to RentCafe’s annual Adaptive Reuse Report. Of the 122,000 apartments currently undergoing conversion, 45,000 are the result of office repurposing, representing 37% of the total, followed by hotels (23% of future projects).
Multifamily Housing | Jul 13, 2023
Walkable neighborhoods encourage stronger sense of community
Adults who live in walkable neighborhoods are more likely to interact with their neighbors and have a stronger sense of community than people who live in car-dependent communities, according to a report by the Herbert Wertheim School of Public Health and Human Longevity Science at University of California San Diego.
Urban Planning | Jun 15, 2023
Arizona limits housing projects in Phoenix area over groundwater supply concerns
Arizona will no longer grant certifications for new residential developments in Phoenix, it’s largest city, due to concerns over groundwater supply. The announcement indicates that the Phoenix area, currently the nation’s fastest-growing region in terms of population growth, will not be able to sustain its rapid growth because of limited freshwater resources.
Student Housing | Jun 5, 2023
The power of student engagement: How on-campus student housing can increase enrollment
Studies have confirmed that students are more likely to graduate when they live on campus, particularly when the on-campus experience encourages student learning and engagement, writes Design Collaborative's Nathan Woods, AIA.
Urban Planning | Jun 2, 2023
Designing a pedestrian-focused city in downtown Phoenix
What makes a city walkable? Shepley Bulfinch's Omar Bailey, AIA, LEED AP, NOMA, believes pedestrian focused cities benefit most when they're not only easy to navigate, but also create spaces where people can live, work, and play.
