By: Johan Rosenberg, Chairman
From the beginning of the pandemic, we worried mightily about the incoming class for Fall 2020. What would enrollment look like? Housing occupancy? On-site, remote instruction or hybrid models? We planned for the worst case scenario and for a mild set-back, and predicted the most likely outcome. The worst case didn’t happen, and if we look at the developments of Fall 2020, it can serve as a predictor for how Fall 2021 plays out.
As of November, here is what was predicted and what actually has happened:
Students returning to campuses was viewed as a potential super-spreader event. Absolutely true: Infection rates have soared in college towns as students returned to campus. Most schools shifted to online instruction, while many continued with onsite housing. And throughout the month of November, the data have shown that infections and death rates are doubling at an alarming rate. With a shrug and a sneer, the nation does not seem to care, even as Dr. Fauci warns of “surge upon a surge,” with travel through US Airports on the Saturday after Thanksgiving only down 10% compared to 2019.
On March 25th, S&P Global Ratings revised its outlook on U.S. higher education privatized student housing projects to negative, citing a potentially prolonged decline in occupancy. In August, Moody’s predicted the pandemic would slow the pace at which colleges take on public-private partnerships (P3s) paid for by user fees. Mostly not true: According to Yardi Matrix’s entire database of student housing projects in development, only two have been canceled since the start of the pandemic, and new deals are being priced within striking distance of last year’s yield spreads. Student housing has proven to be a resilient asset class, nearly COVID-19 proof.
Enrollment would likely fall, with many taking a gap year, and international students not feeling welcome. Mostly true: However, the impact on student housing is not terrible. The flow of new international students into U.S. institutions plummeted 43% from the previous year and undergraduate enrollment has fallen, with 10% to 20% of incoming freshmen choosing to defer their enrollment for one year, while graduate enrollment has risen. Many universities have seen a rise in deferments for first-year students and a fall in international enrollments. Although, American Campus Communities (a national owner/operator of student housing) reports that, as of September 11, occupancy at properties that largely house freshmen was about 80%, while occupancy at properties that house upperclassmen was about 93%. Generally, student housing projects break even at about 83% occupancy.
The student housing market at universities going online for the semester would be hit, “but not too hard.” Somewhat true: Out of 70 universities that Yardi Matrix analyzed, nearly 22% had off-campus student housing pre-leasing rates 2% higher than at the same time last year, 20% had pre-leasing rates within 2% of last year’s rate, and 58% have pre-leasing rates 2% lower than last year’s rates.
Overall, the COVID-19 pandemic does not seem to have affected new development, even though enrollment trends may have shifted, with a rise in graduate enrollment and a drop in undergraduate enrollment. Looking ahead to Fall 2021, while COVID-19 conditions remain unpredictable, based on this year’s fall data, student housing properties will likely perform.