What COVID-19 and the Future Hold for Student Housing

March 26, 2020

What COVID-19 and the Future Hold for Student Housing

March 26, 2020
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Spring is normally the season when parents and their college-age children begin making housing arrangements for the upcoming fall semester. By April, the average pre-lease rate at off-campus student housing apartment communities is typically around 66% across the U.S.

However, the impact of COVID-19 on student housing means that old norms are out the window. Recent social quarantines have resulted in a mass exodus of college students from on-campus housing. For owners and investors of off-campus student properties, new opportunities have emerged for those who are best prepared to meet the needs of this rapidly evolving situation.

Expectations Will Change for Pre-Leasing Season

Student housing development hubs like Tempe, Arizona are facing the immediate impacts of COVID-19.

Recent campus closures and the seismic economic shock have created uncertainty among households, likely resulting in a short-term disruption to spring pre-leasing. Owners and operators should be prepared for some of this activity to shift to the summer months, when the coronavirus is better contained and quarantine orders are rescinded.

In the meantime, off-campus student housing communities will need to rely on their websites and social media for promotion. Communities with the most visually appealing, interactive websites and favorable social media presence will have a distinct advantage. However, with a bulk of pre-leasing activity expected to move into the summer, operators and managers have some runway to expand their digital marketing capabilities.

Occupancy Interruptions May Last Months

Many expect the recently passed stimulus package to help support renters financially and prevent drops in occupancy.

The longer the coronavirus has a major impact on daily life in the United States, the longer we can expect potential disruptions in student housing occupancy. Much is unknown, but here are a few scenarios to consider if economic and social disruption continues into the fall:

  • The impact to off-campus student housing sector will be more significant if the current shift toward online learning persists into the fall 2020 semester. Some students who have acclimated to going to class online and are still concerned about the virus will opt to stay at home if remote options remain available.
  • The impact of extended quarantines will affect owners of student housing communities. New off-campus student housing communities that are completed in the next several months would also face slow lease-up. Off-campus housing projects just starting construction or underway could face delays resulting from financing issues, quarantined labor, or a shortage of building supplies.
  • Extended travel bans could affect the enrollment of foreign students in the fall 2020 semester. Approximately 1.1 million foreign students attend American colleges and universities. Travel restrictions could create upheaval for those students who are not already in the U.S.

Some Permanent Paradigm Shifts Are Likely

It’s no secret that real paradigm shifts may occur as a result of the unprecedented impact of COVID-19 on student housing. It’s difficult to predict the most likely outcome of the coronavirus as there are so many unanswered questions about the outbreak. That said, it’s good due diligence to consider many possibilities:

  • Enrollment stands to be impacted the most directly by a potential long-term economic downturn. Conventional wisdom suggests that as the country’s economic situation grows worse or more prolonged than expected, there may eventually be an influx of students returning to school, helping to offset recent years where enrollment has slowed.
  • If institutions and students are satisfied with the online experience, this outcome may encourage more students to consider distance learning as an alternative to life on campus. This would put institutions that are able to highlight a strong on-campus experience at a major advantage.
  • Another possibility is new trends in school choice. Students planning to attend a four-year college far from home may now be considering a local university instead. This outcome is more likely for households where at least one parent has experienced a layoff or reduction in work hours as a result of the sudden economic shift.
  • In the event of a long-term economic downturn, expect Class B student housing occupancy to increase as Class A housing becomes unattainable for parents with reduced income. As more families become financially vulnerable, some states and municipalities are placing bans on eviction. This puts added pressure on multifamily operators to carefully screen for delinquency risks.

It’s important to remember that today’s conditions are temporary. While some new, long-term trends in student housing may emerge, students will always need a place to live and the majority will want to do so near campus. With the right planning and guidance from experienced advisors, investors can count on student housing to remain an excellent investment vehicle long after the threat of COVID-19 subsides.