COVID-19 effect on student housing
By: J. David Chapman/May 28, 2020
The COVID-19 global pandemic has negatively affected the world of real estate and has been particularly impactful on higher education and student housing. Most universities in America have converted to online learning for not only the spring term, but also for the summer. Additionally, many universities have closed their on-campus residence halls and food service, with questions looming about the fall semester, the incoming freshman class, and the reopening of campuses.
These closings have created a tremendous financial and operational burden on universities. Many universities have been forced to refund room and board and to make matters worse have lost other revenues such as sporting events, concerts and conferences. I was saddened to see the cancellation of graduations and I watched seniors abruptly end their college experience, which most had come to know and love.
Most students living on campus have returned home and the closing of facilities on campus has caused disruption for students living off campus. The majority of students living in off-campus student housing have remained living in those properties. The majority of them report they feel safer in lower-density college towns than returning to their hometowns. That being said, even those who have chosen to return home have continued to pay their rent obligations, with more than 95% of residents paying their rent in April and May. In most cases, parents have saved for the cost of their kid’s education, including room and board, and financial aid packages have remained in place. This is one reason student housing has gained a reputation for being a resilient real estate category.
Many universities are expected to convert to single-occupancy rooms, as opposed to historically more common doubles or triples. This de-densification of on-campus housing is good news for off-campus student housing products. The limitation of on-campus housing will drive higher demand for housing near college campuses.
Undergraduate enrollment is expected to stabilize and graduate enrollment is typically strong during economic down cycles. I believe once the COVID-19 pandemic is under control in the U.S. and our universities are reopened for classes this fall, pricing and cap rates of off-campus student housing will return to pre-virus levels and perhaps even see some cap rate compression. Again, this performance is the reason we consider off-campus student housing recession-resistant.
J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).