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Recession-Resistant Student Housing Proves It Can Also Handle A Pandemic

Student housing providers across the U.S. are breathing a big sigh of relief as they watch leasing activity pick up for the fall semester.

“This year, we are, in every sense, on our way to a full recovery,” Blue Vista Managing Principal Jason Schwartz said.

The Chicago-based firm owns and operates private off-campus student housing developments with a total of 18,000 beds across about 30 campuses nationwide. And students seem eager to sign leases and return to normal college life after a year partially lost to the coronavirus pandemic.

University of Illinois at Urbana-Champaign

The company has already secured leases for 91% of its units. Not only is that ahead of last year’s pace, but it's also five points higher than where the portfolio was exactly two years ago, before the pandemic engulfed American schools. Blue Vista properties as a whole are on pace to hit 95% leased by the beginning of September, Schwartz added.

“We have a bunch of assets that are already 100% occupied,” he said.   

Schwartz said the sector’s recovery should not be too surprising. Even as portions of the economy fell into the doldrums throughout much of last year, student housing in many ways floated above those troubles. Last year, 88% of Blue Vista’s portfolio was leased even though actual occupancy was somewhat lower as a significant number of residents decided to stay home while attending classes online.  

Blue Vista even saw some rent growth last year, Schwartz added. Now, with more students renting and moving back in, the long-term outlook for student housing has brightened considerably.

“Student housing has long been considered a recession-resistant asset class, and I think that it is also now proven to be a pandemic-resistant asset class,” he said.

In one respect, however, student housing is no different than any other asset class. Like all other commercial properties, its impressive recovery depends on whether the delta variant ends up seriously impacting public health.

“Barring a significant outbreak, which I hope does not happen, the schools are planning on going back to full in-person learning, and we are planning on resuming normal operations,” Schwartz said. “We are taking our guidance from the CDC and the universities themselves.”

According to a June report on student housing from Yardi Matrix, some providers are seeing students return at a slower pace than Blue Vista. Pre-leasing for fall 2021 stood at 58.6% for the more than 1,000 surveyed schools, about 4.2% lower than in 2020 and 5.8% below 2019. But researchers also expect a summer surge.

"Many factors are pointing to increased student housing demand, fueled by students who took a gap year now enrolling in four-year institutions, new high school graduates and the gradual return of international students,” researchers stated in the report.

Campus Circle Apartments, Urbana, Illinois

Last year, the worldwide pandemic forced many foreign students who wanted the American college experience to stay home. A fall 2020 survey of 710 U.S. colleges and universities by the Institute of International Education, a New York-based research and advocacy group, found that international student enrollment dropped by 16% overall and new enrollments fell by 43%, according to U.S. News & World Report.

But applications from international students are up for the 2021-22 academic year. In another survey completed this spring, the IIE found 43% of schools reporting an increase in applications, according to a report in Forbes.

This spring, Blue Vista saw a flood of inquiries from overseas students looking for living spaces, Schwartz said. Even though they typically make up about 5% to 6% of the firm’s total student population, many key assets in Blue Vista’s portfolio have much higher concentrations of international students.

Schwartz closely tracks occupancy at those assets to gauge how strong the flow of international students will be this year, and he said he likes what he sees. The University of Illinois at Urbana-Champaign’s Campus Circle Apartments, a 524-bed complex, is a hub for students in the adjacent engineering school, many of whom come from Pacific Rim nations.

“We are at 99% pre-leased on that project, and that’s a good sign international students are coming back,” Schwartz said. 

Campus Circle Apartments is one of three assets in the state owned and operated by Blue Vista. It also owns University Center, a 1,729-bed tower in Chicago’s South Loop neighborhood that houses students from DePaul University, Roosevelt University, Columbia College and several others. Peak Campus, a Blue Vista affiliate, manages the Blue Vista portfolio, along with another roughly 26,000 beds in developments such as Tailor Lofts in Chicago’s West Loop near the University of Illinois Chicago.

Rent growth is also strengthening across the Blue Vista portfolio, according to Schwartz. Last year, even in the depths of the pandemic, the firm saw rent growth of about 1.7%. This year, it will likely end up around 2%, reaching 3% in 12 months' time.

Schwartz said he just returned from InterFace Student Housing 2021, an industry event held July 13-15 in Austin, Texas, where other providers reported similar numbers. It’s led to a surge in optimism not yet dimmed by the spread of the delta variant.

“The sentiments were as positive and excited as I’ve ever seen,” Schwartz said. “It’s nice to be on the other side of what I can confidently call a full recovery.”