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Sponsored Video: Student Housing’s Rapid Evolution and Contributing Factors

Inland Private Capital Corp. is a sponsor of The DI Wire, and the video was published as part of their standard directory sponsorship package.

The student housing sector is a highly fragmented, yet rapidly evolving segment of the housing market. Its growth is largely due to a favorable supply/demand imbalance occurring across the U.S. that is expected to continue in the coming years. Keith Lampi, president and chief operating officer at Inland Private Capital Corporation, offers additional insight into the success and future of this sector with the video below.

Video Transcript

Keith Lampi   00:10

The student housing sector is a highly fragmented rapidly evolving segment of the housing market.  Similar to other housing strategies its success is largely anchored on favorable supply and demand interplay that occurs at the local level or in the case of student housing that occurs on each campus.

We’ve seen that most successful student housing operators understand the importance of analyzing university enrollment trends and comparing them to the availability of overall housing stock in each local market. Historically student housing has been known for its predictable stable performance even during times of economic volatility political turbulence and most recently throughout the COVID-19 global pandemic. In fact, for nearly 15 years the student housing sector has proven to be a steady recession resilient segment of the market consistently generating strong occupancy and rent growth.

There are several key factors driving surging demand for the student housing sector. Most notably the increasing number of high school graduates enrolling in college and the limited near-term supply of housing stock which is largely result of the dislocation in the development pipeline that occurred during the pandemic. Both of these factors have led to higher occupancies providing landlords with outsized pricing power giving them the opportunity to push rents upward and one year lease durations which allow regular mark to market resets that are valuable in an inflationary environment. Demographics also play a role in the growth of the sector.

The US is currently entering a better student housing population growth window than we’ve seen in many years, that said strategy is key. Focusing on university systems with large and growing enrollment continues to carry the day within the sector. Recent performance of the student sector has surprised many throughout the real estate industry. Research shows student housing rent collections during the pandemic outperformed even traditional multifamily which was certainly true within our own portfolio. Multifamily rent collections were consistently in the high 90’s on a portfolio basis and the rent collections within our student housing portfolio followed suit surpassing traditional multifamily by a small margin. Sector wide occupancy also remained stable throughout 2020. Occupancies trended even higher in 2021 and 2022 school year which provides landlords pricing power to quickly increase rents and, in many instances has outperformed other segments of the housing market.

Additionally, student housing has experienced a flight to quality trend among institutional investors largely consolidating around large state universities or tier one markets that have favorable enrollment trends. This has created a significant bifurcation among tier one and Tier 2 opportunities in terms of pricing. And we continue to compare our student housing to other sectors we have seen cap-rate compression occur within the tier one category which generally tracks with traditional multifamily product.

We predict that the prospect for future income growth will continue to drive pricing dynamics across all operating assets and this bodes incredibly well for the future value creation within the student housing sector. The outlook for student housing in 2022 and beyond remains bright based upon our near-term evaluation of the market we predict that rent growth will be outsized across the sector and well into 2023, 2024 enrollment year. Landlord pricing power is expected to continue and has been bolstered given our current inflationary environment. We believe we are still in the early innings of the sector’s growth phase largely due to the highly fragmented nature of the housing market. Almost 2/3 of housing stock in the student space is comprised of alternative supply meaning projects are non institutionally owned and non purpose built.

Overall, we believe the sector has come a long way over the years but continues to evolve rapidly which magnifies the long-term opportunity that continues to exist within the student housing segment of the market

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