The student housing market has been booming in the U.S., with what we believe to be a continued positive outlook. One of the reasons for the influx of capital into the market is that investors are seeking portfolio diversification, and therefore investing in niche commercial real estate sectors.
According to the latest PREA Investor Intentions Survey, 14 percent of institutional investors say they’re focusing on student housing. The obvious reason for choosing student housing as an investment is that it can provide the opportunity for strong risk-adjusted returns. But it also offers diversification in an investment portfolio. Here’s why student housing may be attractive to investors looking to diversify:
Student housing has historically been resistant to recessions
Student housing has historically been less tied to the ebb and flow of the economy than other sectors of the real estate market. When a recession hits or the economy worsens, the demand for student housing his historically increased while other sectors, including retail, office and industrial, declined. That’s because more people enrolled in colleges and universities when a recession happened. So with an increasing number of investors worrying about a coming recession, diversifying an investment portfolio with student housing may make sense.
It’s attracting diverse investors
Over the last several years, student housing has been increasingly on the radar of international investors interested in portfolio sales, providing for a steady and increasing capital flow into the sector. These investors include sovereign wealth funds like GIC and ADIA, private equity firms, foreign pension funds as well as foreign investors such as Safanad, Allianz and Investcorp. Like domestic investors, they’re attracted by diversification, valuation and the historical risk vs. return. Many of these investors also are familiar with student housing in the U.S. because they attended a university in the country or have children who were educated here.
We believe student housing has a strong outlook
Even in the strong economy of the last 10 years, enrollment at universities in the U.S. has steadily increased in recent years. Between now and 2027, the National Center for Education Statistics expects college enrollment to increase from 19.9 million to 20.5 million.
So with the growing number of students, we would anticipate an increased demand for housing. However, the supply of new student housing is declining, which increases the value. The rising capital flow into the niche sector also suggests a strong forecast for the foreseeable future.
Even in a vibrant economy, smart investors look to diversify in sectors that have the potential to yield returns in the long term. With its perceived outlook, the diversity of investors and historically recession-resistant characteristics, student housing may be a logical choice for a diversified portfolio.