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A record year for student housing sales

The student housing sector experienced record transaction volume in 2022, according to commercial real estate firm CBRE Group.

Despite economic shifts like high inflation and rising mortgage rates, sales of student housing doubled year-over-year to $22.9 billion in 2022, with CBRE crediting that growth to “strong operating fundamentals and increased investor demand.”

Real estate investment giant Blackstone gave its seal of approval for the sector in August 2022 with a $12.8 billion acquisition of American Campus Communities, the largest developer, owner and manager of student housing communities in the U.S.

When announcing the deal, Werner commented: “Student housing is a compelling sector with strong historical performance and future growth potential driven by increasing enrollment at the top universities in the U.S. as well as a shortage of quality housing supply.”

The shortage of housing supply is down to several factors, including a scarcity of sites close to campuses and higher interest rates making it harder for developers to finance new construction. These dynamics have enabled landlords to hike their rents.

But while the student housing sector has shown resilience, there are challenges lurking behind the scenes.

As reported by the Wall Street Journal, while college enrollment is up at well-known schools, overall it has declined, especially at small colleges. Student housing values are also trending downward due to higher borrowing costs, but not as significantly as in other parts of commercial real estate.

Data from the St. Louis Fed shows commercial real estate prices trended downward between Q4 2021 until Q4 2022.

Still, Werner described student housing as a sector that “has stood the test of time and is going to be a continued bright spot in the future.”

If you agree, here’s how you can get a piece of the action.

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Become a landlord

The most direct way to get your piece of the pie is to buy student housing as an investment property — of course, you need to have enough money in the bank to not only cover the mortgage but also the down payment, closing costs and other fees.

Well-chosen properties — in the case of student housing, as close to campus as possible — can provide more than just price appreciation. Investors also get to earn a steady stream of rental income.

Of course, while we all like the idea of collecting passive income, being a landlord does come with its hassles, like fixing leaky faucets, and in the case of students, dealing with new tenants (with limited income) each year.

Invest in residential REITs

Investing in a residential real estate investment trust (REIT) is a way to profit from the real estate market without having to buy an actual property and manage tenants.

REITs are publicly traded companies that own income-producing real estate like apartment buildings, shopping centers and office towers.

Essentially, REITs are giant landlords. Some have blue chip tenants such as the U.S. government, while others house e-commerce giants like Amazon and Walmart.

They collect rent from those tenants and pass that rent to shareholders in the form of regular dividend payments, which you can then reinvest and use to build your portfolio.

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Use online investment platforms

Prime commercial real estate has outperformed the S&P 500 over a 25-year period, and until recently, only the ultra-rich with millions to invest were able to get in on that action.

But new online investing platforms have opened up opportunities like this to regular retail investors.

Some platforms use a crowdsourcing model where you can join thousands of members with similar interests — in this case, student housing — seeking to boost returns and generate passive income.

With these easy-to-use platforms, which are often backed by a team of experts who can help you build your ideal portfolio, you can browse curated deals or join funds invested in diversified real estate portfolios that will maximize your returns while keeping your fees low.

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About the Author

Bethan Moorcraft

Bethan Moorcraft

Reporter

Bethan Moorcraft is a reporter for Moneywise with experience in news editing and business reporting across international markets.

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