Long time Jacobson Equities investors have benefited from our successful investments in student housing properties for over a decade. However, as we have many new investors who have joined us since our last student purchase (the 618 bed, 2020 built Alsander GNV at the University of Florida), we thought it made sense to explain the investment appeal of student housing. The timing, of course, is not a coincidence, given our current acquisition of Warehouse and Factory, a 163 unit, 260 bed mid rise, pedestrian to Texas A&M University, the largest single campus school in the U.S.
Student housing has emerged as one of the most resilient and attractive investment asset classes within the real estate sector. This specialized form of housing, designed to accommodate university and college students, has demonstrated remarkable performance metrics that increasingly draw institutional and individual investors. The sector has shown exceptional stability with consistent occupancy rates, strong rent growth, and compelling risk-adjusted returns, all while demonstrating notable resistance to economic downturns.
Robust Market Fundamentals
The student housing sector benefits from positive enrollment trends, favorable supply-demand dynamics, and consistent occupancy performance-all contributing to the sector’s compelling investment case.
Enrollment Trends and Demographics
Current enrollment statistics present a positive picture for student housing investors, with postsecondary enrollment increasing by 4.5% in Fall 2024, surpassing pre-pandemic levels for the first time. This growth is particularly notable among first-year students, with freshman enrollment rising by 5.5%, representing approximately 130,000 additional students entering the system. International student enrollment is growing even more rapidly, with an 8% increase in the 2023/24 academic year, adding further demand for off-campus accommodations. This enrollment growth is a relief to those concerned about the looming “demographic cliff” expected to begin in 2025 due to declining birthrates relative to the millennial cohort. Jacobson’s focus on large universities should continue to be the best strategy as smaller, private schools are expected to bear the brunt of the impact from any decline in enrollment.
Supply and Demand Dynamics
A critical factor driving student housing’s investment appeal is the persistent supply-demand imbalance across many university markets. Data reveals that eight major universities face housing shortfalls exceeding 20,000 beds each, creating substantial opportunities for off-campus providers. This shortage is further compounded by slowing construction pipelines, with new supply projected to decrease from historical peaks of 10.4% annual inventory growth to just 3% for 2025. For the Yardi 200, a data set that includes more than 2,00 universities and colleges, 37,035 units were delivered in 2024 (3.9 percent of total inventory). In 2025, 29,457 units (3 percent) will be delivered, and new deliveries stay around that level for the rest of the decade. The impact of these housing shortages creates significant pricing power for existing properties, allowing owners to increase rents while maintaining high occupancy levels, a scenario highly favorable to investors seeking stable returns with growth potential.
Occupancy Rates and Market Stability
Student housing has demonstrated remarkable stability through consistently high occupancy rates, which have consistently exceeded 94-95% nationally. Pre-leasing data for 2025 shows continued strength, with 67.1% of beds pre-leased by March, outpacing the previous year’s rate. Performance varies significantly by university tier, with flagship universities achieving occupancy rates of 90-99%. Location relative to campus significantly impacts performance, with properties within a half-mile radius maintaining the highest occupancy at 94.8%. As of September 2024, 50 institutions among the 200 monitored by Yardi reached 99% occupancy, demonstrating the exceptionally strong demand at leading universities. This consistent occupancy performance provides investors with a level of stability often not found in other real estate asset classes, making student housing particularly appealing for those seeking reliable income streams.
Historical Returns and Appreciation
The student housing sector has delivered exceptional historical returns for investors, combining strong income yields with appreciating asset values. Cash-on-cash returns have averaged 17% as of 2022, significantly exceeding the 8-12% range typically considered strong for real estate investments. Transaction volumes reached a record $18.9 billion in 2022, with 2024-25 figures remaining robust at $5.2-5.7 billion annually, demonstrating the sector’s maturation and growing institutional acceptance. Cap rate trends have stabilized around 5.5% for core assets, reflecting the sector’s lower risk profile as it becomes more institutionalized. The sector’s performance is particularly impressive in flagship university markets, with lease rates growing 21.3% at the University of Tennessee and 19.4% at the University of Mississippi during the 2023-2024 leasing season. These metrics demonstrate student housing’s capacity to deliver both strong current income and long-term capital appreciation, creating a compelling total return profile for investors.
Comparison to Other Real Estate Classes
Student housing presents several structural advantages when compared to other real estate asset classes, particularly traditional multifamily properties. Yield spreads typically range from 25-100 basis points above conventional multifamily, providing investors with enhanced return potential. This premium exists despite student housing’s increasingly institutionalized and lower-risk profile, creating an attractive risk-adjusted return opportunity. The by-the-bed leasing model differs fundamentally from traditional by-the-unit structures, allowing for maximized revenue potential and protection against partial vacancy within units. Operational differences include alignment with academic calendars, specialized amenities focused on student needs, and management practices tailored to the unique requirements of student residents. Perhaps most notably, the parent co-signer advantage significantly enhances credit quality compared to traditional multifamily, as financially established parents or guardians typically guarantee lease obligations, substantially reducing default risk.
Risk Factors and Mitigation Strategies
Student housing investments do face certain unique execution risks that explain the more favorable cap rates. Most notable is the importance of successfully managing the annual lease up, beginning in the fall of the prior year, and continuing through spring and perhaps, depending on the school, through summer. A pre-lease battle plan is created not long after students move in for the current academic year, providing for tiered price increases and tactical use of concessions throughout the winter and spring months. Understanding best in class marketing methods to reach students physically (on campus) and digitally (especially when they are home for the holidays and summer) is critical. Each school has different rules regarding on campus marketing and students congregate in different hot spots within the neighborhoods surrounding the school. Good managers know how to reach students where they congregate off campus. Similarly, online marketing has evolved into a key competency essential to reaching students both when they are in session and when they are home.
The other key distinction between student housing and conventional multifamily is the concentrated turnover period during the summer months. Outside vendors (e.g., cleaning, paint) must be secured prior to summer and, in July, they and salaried maintenance staff must ready units for return to school in August, ensuring quality turns and limited or no work orders following move in. A successful turnover season is essential to starting the year off on the right foot with the new cohort of student tenants.
Recession Resilience and Economic Cycle Impact
One of student housing’s most compelling investment attributes is its demonstrated counter-cyclical nature during economic downturns. While not completely “recession-proof,” the sector has shown remarkable stability during previous economic contractions, maintaining occupancy rates of 90-95% even during challenging periods. This performance contrasts favorably with conventional multifamily housing, as student housing demonstrated higher occupancy rates (96.5% vs. 95.6%) during previous recessions. Several factors contribute to this resilience: enrollment often increases during economic downturns as people seek to improve their qualifications and job prospects in a tight labor market; universities provide stable economic anchors unlike corporate relocations that can impact traditional multifamily demand; and parent guarantors enhance payment security even when economic conditions deteriorate. Additionally, student housing functions as an effective inflation hedge through annual lease adjustments that allow owners to reset rents to market levels each academic year.
Conclusion
Student housing has firmly established itself as a compelling investment asset class within the real estate sector, offering a unique combination of strong returns, operational stability, and recession resilience that appeals to institutional and individual investors alike. Major recent portfolio purchases by KKR (19 student housing assets, $1.64 billion) and Scion (14 properties at 13 schools, $893 million) are just two examples of institutional interest in the sector.
Investors seeking to capitalize on student housing opportunities should focus on flagship university markets with strong demand fundamentals, prioritize properties within walking distance of campus, and implement professional management practices tailored to the sector’s unique characteristics. Jacobson has high conviction that strategically positioned student housing investments at leading institutions with consistent enrollment growth will continue to deliver compelling risk-adjusted returns.
