Student Housing Sector Leads New York City Multifamily Market’s Comeback
By Mark Fogel, founder, ACRES Capital
Despite the pandemic-related uncertainty that dominated the markets in 2020, the student housing sector consistently displayed strong pre-lease occupancy rates among properties under construction, suggesting that the asset class would be well-positioned to hit the ground running in 2021.
According to RealPage Analytics, students, encouraged by the prospect of fully reopened campuses, fueled a nearly 10 percent nationwide increase in pre-lease occupancy at off-campus housing between March and April of this year. This data in particular seems to support improvement for the student housing sector overall.
Research organization RealPage has tracked student housing occupancy rates at 175 major universities across the country, a sort of barometer for the larger industry. As of March, the company’s data showed that 59.6 percent of beds at those universities were preleased for the fall 2021 semester. While that figure is still 200 basis points below the March 2020 level, it seemingly speaks to students’ preference to get back to living on campus.
And while this is good news for operators and developers, the resiliency of the student housing market is bringing forth an unintended, but positive effect on one of the hardest-hit rental markets in the country: New York City.
Since the onset of the pandemic, rents in the Big Apple have consistently declined, with the Wall Street Journal reporting an 11.6 percent apartment vacancy rate in April 2021 — more than double the national average. One factor that significantly contributed to this is the mass exodus of students amid the campus shutdowns. In addition, Bloomberg reported this spring that multifamily rents across the city were down 21 percent year-over-year, having dropped by 15.5 percent in Manhattan and 8.6 percent in Brooklyn and Queens.
“While the Manhattan apartment rental market is among the worst in the United States, the influx of younger renters is a bright spot for the city, and an encouraging sign for its recovery,” reported The Wall Street Journal on May 20.
Neighborhood vacancy rates seem to support this notion. Pre-pandemic, approximately 500,000 students lived and attended schools in New York City. After the lockdowns, the highest vacancies were reported in the East Village, in proximity to New York University (NYU) and The New School. The Broadway Corridor/Lincoln Center neighborhoods, which accommodate numerous off-campus students from nearby Fordham University, The Julliard School and Columbia University, also saw high vacancy within its student housing market.
While college students have been making their plans to return to New York City since last summer, the real question is what will happen to the city’s rental market when students make their collective return.
Off-Campus Poised to Benefit
As rental prices in the city fell significantly during the pandemic, a rare opportunity was created for younger people to find affordable spaces without roommates. This would not have been possible in past years.
Before the pandemic, there were numerous options for both off- and on-campus housing in New York City. During the pandemic, off-campus housing prices plunged while on-campus housing prices flattened and, in some cases, increased. These rental price declines are likely to encourage more students to consider off-campus housing as a more cost-effective option.
While a significant factor in housing choice, cost is not the only driver for students to consider off-campus housing. As campus dorms were linked to the rapid spread of COVID-19, students — and their parents — looked to off-campus units as a safer choice, due to their typically more spacious layouts.
Indeed, micro-apartments, which were gaining in popularity pre-pandemic, are less desirable now, and their asking rents reflect this. Conversely, apartments with terraces or balconies have gained in popularity as months of indoor lockdowns fueled the desire for outdoor space.
Another situation that may impact the future Manhattan rental market is the possibility of universities and colleges divesting their on-campus housing assets. Numerous outlets estimate that almost 30 percent of United States-based institutes of higher learning are running at a deficit. In historically high-valued real estate markets like New York City, local universities have the option to divest their real estate to mitigate financial challenges.
Numerous what-if scenarios make it challenging to predict the full impact that campus re-openings will have on the broader New York City housing market. However, for the first time in a long while, college students will have numerous off-campus housing options, including those within walking distance to campuses in historically affluent neighborhoods.
While it is only a matter of time before the New York City housing market returns to pre-pandemic vacancy levels, it would be wise to continue monitoring the effects the student housing sector will have on the Big Apple’s housing recovery.
— ACRES Capital is a middle-market lender and investment advisory firm based in Westbury, New York.