Student Housing: Resilient Performance in a Cycling Market with Brent Little

Student housing has long been viewed as a niche within commercial real estate—but in today’s uneven economic cycle, it’s proving to be one of the most resilient property types in the market. On America’s Commercial Real Estate Show, host and Commercial broker Michael Bull, CCIM sat down with Brent Little, President and CEO of Fountain Residential Partners, to explore why student housing continues to outperform, even as other sectors struggle with rising costs, interest rate volatility, and softening demand.

 

Student Housing Performance: Strong Occupancy and Steady Rent Growth

Across the country, student housing delivered another solid leasing cycle. According to Little, national student housing rents increased approximately 2% year-over-year, while occupancy reached roughly 94.5%, which is effectively considered “full” in this asset class.

Unlike traditional multifamily, student housing operates on a bed-by-bed leasing model, and properties are typically underwritten to a maximum stabilized occupancy of around 95%. When you consider that these averages include every quality tier—from older, poorly located assets to top-tier developments—the performance of best-in-class properties is even stronger.

 

Enrollment Trends Defy the Feared “Enrollment Cliff”

For years, investors have worried about a looming enrollment cliff tied to demographic shifts following the 2008 financial crisis. So far, those fears have not materialized.

Major universities across the U.S. reported approximately 2% enrollment growth, with large flagship schools—those with 20,000 to 30,000+ students—continuing to thrive. Selective admissions provide these institutions with flexibility; even minor adjustments to admission standards allow them to maintain or grow enrollment.

While smaller or tertiary schools may struggle, purpose-built student housing near major universities remains well-positioned for long-term demand.

 

Rising Expenses and the Impact on Valuations

Like all commercial real estate sectors, student housing has not been immune to rising expenses. Properties acquired or developed during the low-rate environment of 2020–2022 have faced significant increases in:

• Interest rates
• Insurance costs
• Property taxes
• Operating expenses

These higher costs have compressed values, even for well-performing assets. However, continued rent growth has helped offset some of the pressure. Notably, average student housing rents surpassed $1,000 per bed for the first time, pushing four-bedroom units beyond $4,000 per month in aggregate rent.

 

Limited Distress, Slower Transaction Volume

Despite valuation challenges, distress remains limited in the student housing sector. Owners who can maintain occupancy and meet debt service are generally holding assets rather than selling at reduced values.

As a result, transaction volume has slowed. Investment sales declined from approximately $8 billion to $6 billion, reflecting fewer trades rather than widespread operational distress.

 

Construction Costs: Stability Returns

After years of volatility, student housing construction costs have largely stabilized. According to Little, costs are mostly flat across the country, aided by:

• Reduced competition from conventional multifamily development
• Improved availability of subcontractors
• Normalized material supply chains post-COVID

Some long-lead items—such as transformers and major electrical components—still require early procurement, but most core materials like concrete, lumber, drywall, and roofing are readily available and priced more consistently.

 

Capital Markets: Debt Is Back, Equity Is Selective

The debt markets have reawakened for student housing. Banks and life companies are actively lending, particularly on well-located, purpose-built projects near major universities.

Equity, however, tells a more nuanced story:

• LP equity remains cautious and selective
• GP equity is more readily available, with pricing improving as interest rates ease

For projects that can be built and stabilized quickly, higher-cost GP capital can still be accretive—especially when paired with strong rent growth and favorable exit assumptions.

 

Adaptive Reuse: Converting Office Buildings to Student Housing

One of the most compelling trends discussed was adaptive reuse. Fountain Residential Partners is actively converting underutilized office buildings into student housing, including a high-profile project in Long Beach, California.

With limited available land near campuses, office-to-residential conversions offer:

• Faster delivery timelines (often 12–14 months)
• Acquisition costs well below replacement cost
• Unique identity and “cool factor”
• Potential tax incentives

While entitlement and regulatory hurdles—especially in California—remain significant, municipalities are increasingly open to adaptive reuse as office vacancies rise.

 

Amenities: From Arms Race to Experience-Driven Design

The so-called “amenities arms race” has matured. While extreme features like rock climbing walls and lazy rivers have cooled, today’s student housing still delivers resort-level experiences.

Modern properties typically feature:

• Clubhouse, fitness center, and resort-style pool (the non-negotiable trio)
• Pickleball courts, cold plunge, sauna, and wellness features
• Coffee bars, podcast studios, and collaborative study spaces

These amenities reflect how students live today—blending wellness, productivity, and social connection.

 

Student Housing vs. Conventional Multifamily: A Tale of Two Markets

Perhaps the most striking comparison came from Austin, Texas. While conventional multifamily there faced 10% vacancy and rent declines of more than 7%, student housing in the same market achieved:

• 4% rent growth
• Average rents exceeding $1,300 per bed
• Occupancy above 94%

This divergence underscores student housing’s reputation as a counter-cyclical investment, historically outperforming during economic downturns, including the Global Financial Crisis and COVID.

 

The Outlook: Stable, Resilient, and Built for the Long Term

After more than 25 years in the student housing business, Brent Little remains optimistic. Enrollment growth, steady rent increases, and strong occupancy fundamentals continue to support the sector.

While legacy assets underwritten with outdated assumptions may face challenges, new developments priced to today’s realities are still generating compelling returns—even with conservative exit cap rates.

In a cycling market where many asset classes are searching for stability, student housing stands out as a proven, resilient performer.