2021 Student Housing Market Overview and 2022 Outlook - Flipbook - Page 29
THE GRIFF
Columbus, OH
growth metropolitans. 2021 saw a variety of student housing assets at smaller universities, but within growing conventional markets,
attain premium transactional pricing otherwise not met by student buyers.
It appears possible that cap rate spreads between the two asset classes could return to historical levels with debt costs anticipated
to increase over the next two years from additional rate hikes aimed to combat historic levels of inflation. As the student space has
progressed toward continued institutionalization and diversification from new entrants, both domestic and foreign, the long-term
outlook of the student housing sector could prove out comparable cap rates relative to its conventional counterpart. In growing
Tier-I student markets, many investors are drawn to student housing’s attractive risk-adjusted returns, resiliency against economic
downturns, and the ability to more closely monitor the supply and demand fundamentals of the specific submarket.
STUDENT HOUSING VS U.S. CONVENTIONAL MULTIFAMILY CAP RATES
(based on assets priced $2.5mm+)
6.50%
6.00%
5.50%
5.00%
4.50%
12/1/2015
12/1/2016
12/1/2017
12/1/2018
SH Cap Rates
12/1/2019
12/1/2020
12/1/2021
U.S. Cap Rates
Source: Real Capital Analytics
In early 2020, the Federal Reserve began rolling out a massive amount of rate cuts which were followed with emergency liquidity
provisions. As 2020 continued, interest rates tumbled to record lows as the economic impacts of the COVID-19 pandemic reeled
uncertainty. In contrast, 2021 witnessed a sharp increase in economic recovery, in large part due to the mass roll-out of vaccinations
that occurred in the first two quarters of the year. With inflation showing signs of historic increases through Spring 2022, complex
supply capacity issues, and the repercussions of the Russian-Ukrainian war, the Federal Reserve has ended its asset program that
provided liquidity to the bond markets. Additionally, in the March 2022 FOMC meeting, the approval of the first-rate hike in 3 years of
25 basis points occurred, and an expectation of future 50 basis-point hikes rippled throughout the market. While rising interest rates
impact real estate yields, it’s possible that substantial capital supply, a lack of alternatives to combat inflation, and the likelihood of
rate decreases within the next 2.5 years will keep cap rates near historic lows. Historically, the Federal Reserve pivots toward rate
decreases within 3 years of their first rate hike in any given cycle.
2 0 2 1 S T U D E N T H O U S I N G M A R K E T O V E R V I E W A N D 2 0 2 2 O UT L O O K
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