Student Housing Demand Post-COVID: Opportunities for REITs

The COVID-19 pandemic disrupted global economies, redefined work and education norms, and shook real estate markets across all asset classes. Among the sectors most impacted was student housing, which faced significant volatility during 2020–2021 due to university closures, remote learning, and international travel restrictions. However, in the post-COVID era, student housing has not only rebounded but emerged as a particularly resilient and attractive asset class. For Real Estate Investment Trusts (REITs), this resurgence presents a compelling opportunity to capitalize on shifting demographics and long-term trends.

Rebounding Demand for Student Housing

With universities worldwide resuming in-person classes, student housing demand has sharply rebounded. In the U.S., for example, fall 2023 saw student housing pre-leasing rates at record levels, with average occupancy rates exceeding 94% in many tier-one university markets. This recovery is not limited to North America; similar patterns are evident in the UK, Australia, and parts of Europe, driven by both domestic and international student flows.

Several key drivers underpin this recovery:

1. Increased University Enrollment: Higher education remains a priority for students seeking career advancement. Many universities have experienced a post-COVID enrollment bump, partly fueled by students who deferred during the pandemic.

2. Return of International Students: With borders reopened and visa policies gradually normalizing, international student enrollment is climbing back. These students often seek purpose-built student accommodations (PBSA), which are more likely to be owned or operated by REITs.

3. Shift Away from On-Campus Living: Even where universities provide housing, capacity constraints and health-related preferences have pushed students toward off-campus or privatized housing solutions.

Why Student Housing Appeals to REITs

Student housing REITs—such as American Campus Communities (now acquired by Blackstone), Unite Students (UK), and GSA (Global Student Accommodation)—benefit from several structural advantages:

• Stable Occupancy and Predictable Cash Flow: Student housing tends to enjoy high annual turnover but consistent occupancy. Lease terms are usually aligned with academic calendars, often prepaid, which enhances income visibility.

• Counter-Cyclical Demand: Education demand typically holds strong—even rises—during economic downturns, providing a degree of insulation from broader market volatility.

• Limited Supply in Prime Markets: Zoning restrictions, high land costs near major universities, and lengthy approval processes create supply constraints, helping maintain rental pricing power.

• Professionalization of the Sector: A growing preference among students and parents for high-quality, amenity-rich accommodations has accelerated the shift from informal landlords to institutional-grade providers, giving REITs a competitive edge.

Investment Opportunities and Trends

In the wake of COVID-19, several trends are reshaping the student housing landscape, opening up new investment paths for REITs:

Geographic Expansion and Global Diversification

REITs are increasingly looking beyond domestic markets to diversify income streams. The UK, Canada, and Australia have seen strong investor interest due to stable education systems and high international student populations. Markets in continental Europe and Asia are also becoming viable, especially in university hubs like Germany, the Netherlands, and Singapore.

Technology-Enabled Living

Post-COVID expectations around cleanliness, contactless systems, and digital infrastructure have accelerated the need for tech integration. Smart locks, high-speed Wi-Fi, app-based maintenance requests, and online leasing are becoming standard. REITs that invest in technology can differentiate their assets and boost operational efficiency.

Sustainability and ESG Focus

Millennials and Gen Z students increasingly demand eco-friendly housing. REITs incorporating green building certifications, energy-efficient systems, and wellness-focused design elements are likely to attract both tenants and ESG-conscious investors.

Public-Private Partnerships (P3s)

Some universities, faced with budget constraints post-COVID, are turning to REITs and private developers to build and manage student housing through P3 structures. These partnerships offer REITs long-term leases, proximity to campuses, and minimized entitlement risks.

Acquisition of Distressed Assets

Not all student housing operators survived the pandemic. Smaller landlords with underperforming properties represent acquisition targets for well-capitalized REITs, especially in high-demand university zones. Renovating and repositioning such assets can yield strong returns.

Risks and Considerations

While the outlook is promising, REITs must navigate several risks in the student housing sector:

• Regulatory and Political Risk: International student flows are subject to visa policies and geopolitical factors. REITs with high exposure to one nationality or country may face sudden shocks.

• Enrollment Volatility: Though enrollment is currently recovering, long-term demographic trends—especially in aging societies like Japan or parts of Europe—could constrain demand.

• Inflation and Construction Costs: New development remains challenged by high labor and material costs, which could affect project feasibility and returns.

• Management Intensity: Unlike traditional multifamily housing, student housing requires more hands-on management due to short lease cycles, high turnover, and seasonal occupancy patterns.

Conclusion: A Resilient, Evolving Sector

The student housing sector has not only weathered the COVID storm but emerged with enhanced investment appeal. With demographic tailwinds, a renewed focus on in-person education, and an increasing preference for professional, well-managed living environments, the demand for student housing is set to remain strong.

For REITs, particularly those seeking diversification and stable income, student housing offers a compelling growth story. By embracing technology, sustainability, and global market entry, REITs can position themselves at the forefront of this evolving asset class. Post-pandemic, the lessons learned are driving a more adaptive, resilient model—one that presents ample opportunity for forward-thinking real estate investors.

Frequently Asked Questions

Why has student housing emerged as a resilient real estate sector post-COVID?

Student housing has proven resilient post-COVID for several reasons:

• Return to In-Person Learning: After prolonged remote learning, universities globally resumed physical classes, driving students back to campus towns and reigniting demand for accommodations.

• Rebound in Enrollment: Many students who deferred during the pandemic enrolled post-COVID, creating a short-term surge in housing demand.

• International Student Comeback: With borders reopening, international student numbers are rising, especially in markets like the U.S., UK, and Australia. These students typically prefer high-quality, purpose-built student housing (PBSA), often owned or managed by REITs.

• Counter-Cyclical Nature: Education demand tends to remain stable—even rise—during economic downturns, insulating student housing from broader market volatility.

• Supply Constraints: Limited housing supply near campuses has preserved rental pricing power and reduced vacancy risk.

These factors combined have enhanced the investment appeal of student housing, making it one of the most stable real estate niches in the post-COVID environment.

What makes student housing attractive to REITs compared to other property types?

REITs are attracted to student housing because of:

• Predictable Income Streams: Leases are usually structured around academic calendars with high pre-leasing rates, ensuring stable cash flows.

• High Occupancy Rates: Major university towns often experience occupancy rates above 90%, with demand driven annually by incoming students.

• Limited Competition from Institutions: Many universities face budget constraints and prefer outsourcing housing to private operators, allowing REITs to fill the gap.

• Professionalization Trend: The shift from mom-and-pop landlords to institutional management gives REITs a competitive edge through economies of scale and standardized services.

• Global Investment Opportunities: Student housing is a globally scalable asset, enabling REITs to diversify across markets while tapping into strong international demand.

What challenges should REITs be aware of when investing in student housing?

Despite its opportunities, student housing presents several challenges for REITs:

• Enrollment Risk: Enrollment rates are subject to demographic shifts, tuition policies, and economic conditions. Long-term population trends in some countries could reduce demand.

• Operational Complexity: Student housing is more management-intensive due to high tenant turnover, seasonal occupancy, and the need for frequent maintenance.

• Geopolitical and Visa Issues: Heavy reliance on international students exposes properties to travel restrictions, visa delays, or diplomatic tensions.

• Construction Costs: Rising costs for labor and materials post-pandemic make new developments more expensive, affecting project viability.

• Reputation Sensitivity: Students and parents are highly responsive to safety, cleanliness, and service levels. One poor experience can quickly damage a brand or property’s reputation.

REITs need robust operational strategies and market research to mitigate these risks effectively.