Steve Canty is a director at GRS Group. He can be reached at (858) 433-0441 or via email at scanty@grs-global.com

Commercial real estate’s student housing sector is in the enviable position of experiencing slowing growth at a time when certain fundamentals could experience a negative under different circumstances.

From all of last year through fall of 2019, student housing’s vacancy rate by unit is forecast to fall 10 basis points, to an extremely tight 2.5 percent, according to a recent report by Reis (download here). That’s despite new product increasing by 2.6 percent. Meanwhile, there is still expected rent growth, at 2.7 percent, which is slightly down from 3.3 percent last year, proving that operators can’t have everything going for them!

In assets that rent by bed, vacancy is seen lowering to 4.6 percent from five percent, and rents rising at a slower, similar pace of 2.6 percent compared with 3.1 percent.

The biggest building spike of new supply is expected in the Northeast, at 11.6 percent. The Southwest is forecast for the most rent growth, increasing 4.3 percent, but vacancy rates will be the highest, at four percent. Meanwhile, the West will be the hardest place to get a room, with 1.9-percent vacancy.

The bulk of successful new student-housing supply is happening close to campus, according to a recent RealPage report. Since there is less land around these areas, developers are having to build taller assets with smaller units. More than 25 percent of projects in 2018 were seven stories are higher, while structures of that height only made up eight percent of the total in 2011.

The rooms shrink with the height – the average student-housing until in 2011 was 402 square feet, while those on tap for this year are said to average 344 square feet.

As far as the impact of a potential CRE downturn goes, student housing experts said they aren’t worried. In fact, during a Bisnow panel late last year, investors in the sector seemed to welcome a recession. Their thinking? When the economy is in trouble, enrollment in schools increases because many laid off workers will take the time to go back to school and get advanced degrees. During the last downturn, around 2009, there was reportedly record school enrollment.

However, we aren’t in a recession right now, and student housing is performing just fine. Let’s hope it stays that way without an economic downturn that makes the other sectors suffer!

About GRS Group

GRS Group is a leading provider of commercial real estate (“CRE”) services worldwide. With offices across the United States, Europe, and affiliates around the globe, GRS Group provides local market knowledge with a global perspective for institutional real estate investors, occupiers and lenders worldwide. The GRS Group team has evaluated and advised on over $1 trillion in CRE transactions.

Through the company’s proprietary management process, Global Services Connection, GRS Group delivers an integrated suite of services including Financial Advisory, Transaction Management, Assessment and Title Insurance.  We provide a single point of contact, capable of leveraging the GRS Group portfolio of companies and delivering customized solutions to assist our clients in achieving their investment goals.