The COVID-19 global pandemic has hit the world with tremendous force and has been particularly impactful on higher education. Most universities in America have converted to 100 percent online learning for not only the spring term, but also for the summer. Additionally, universities have largely closed their on-campus residence halls and food service, with questions looming about the fall semester, the incoming freshman class, and the reopening of campuse
This created tremendous financial and operational hardships on universities that are refunding room and board and losing other revenues, on faculty having to convert on short notice to teach remotely online, and on students having to learn entirely online with many returning home mid-semester. Most in-person graduations were canceled with seniors abruptly experiencing an end to the college experience, which most had come to know and love.
On-campus, off-campus housing impacts
Here are answers to the top eight questions I am asked about student housing now.
- Given actions by universities to largely close on-campus housing, what has been the impact with the large inventory of off-campus student housing? Have all the students gone home?
There are more than 800,000 beds of off-campus, purpose-built student housing located in the Axiometrics 175 leading university markets in America. While the super majority of students living on campus have returned home, the closing of facilities on campus has confused students living off campus. Many are upperclassmen who do not want to move home, and many feel safer in lower-density college towns. This preference is reflected in the fact that 61% of our student residents remained on property in March, a figure that increased to 70% in April. Most students living off campus have not gone home.
A large percentage of our residents continue to live with us and will remain with us next year. Their parents have saved for the cost of their education (including room and board), and financial aid packages have remained in place.
- Are you pre-leasing your student apartments for the fall semester? Do you anticipate being open in the fall?
Since the declaration of the COVID pandemic in March, we have continued the pre-leasing of our properties, but at a slightly slower pace than the same period last year. Over the last seven weeks, our pre-leasing velocity has been about 4% slower than last year. The industry is currently reporting aggregate pre-leasing for next academic year typically averaging between 7% and 10% behind. We fully expect schools will be open for in-class instruction in the fall, and that once most universities make known their intentions to be open in the fall, this will likely be the most robust summer leasing period ever. In fact, the expected “de-densifying”—reducing the number of students in each bedroom—of on-campus housing is expected to drive increased demand for off-campus housing.
How is the student housing industry responding to the coronavirus pandemic operationally or otherwise?
The student housing industry has moved swiftly and in remarkable cooperation and collaboration to respond to the pandemic. The top 30 companies in the industry have established a weekly COVID crisis call, during which time evolving best practices are shared in real time. Following CDC protocols and supporting social distancing, most all student housing companies have: closed on-site offices to residents; closed property amenities; changed mail delivery protocols; canceled special events; utilized virtual tours and exclusively online marketing; suspended campus shuttle services; purchased masks and gloves for use by maintenance staff; and engaged in constant cleaning practices. CDC protocols regarding washing of hands, social distancing, self-quarantine, etc. are part of the employee and resident protocol. We have been pleased that none of our 400 employees have tested positive for COVID-19; and only two of our 15,000 residents tested positive, and they were both tested, quarantined and have returned to health.
Are students still paying their rent, even if they have left campus?
As mentioned before, the majority of students living in off-campus student housing have remained living at their properties. That being said, even those who have chosen to return home have continued to pay their rent obligations, with more than 95% of residents paying their rent in April and May. We have offered a Rent Deferral Program for residents who have suffered a hardship, but only about 1% of residents thus far have requested that. A large percentage of our residents continue to live with us and will remain with us next year. Their parents have saved for the cost of their education (including room and board), and financial aid packages have remained in place.
What impacts do you see COVID-19 having on university enrollments for the 2020-21 academic year?
Overall, university enrollments at four-year universities are expected to hold fairly stable for 2020-21 academic year. There will be some winners and some losers. Overall, freshman enrollment is expected to be down slightly as some will choose to attend community colleges due to family hardship, and others will take an unplanned gap year. A March survey of high school seniors by Simpson Scarborough indicated that 89% of students who had been planning to attend four-year universities still intended to do so. That figure is expected to increase as more universities declare intentions to be open. There is also expected to be a “flight to quality” this fall, as America’s most desired universities expand admissions and outreach to students who were initially denied—both in state and out of state—in efforts to bolster enrollment. That means students who initially were not admitted to their college of choice will now get a second bite at the apple. Out-of-state students—and their higher tuition—will also be sought in larger numbers to offset expected smaller international enrollments for the 2020-21 academic year. Enrollment of continuing degree-seeking international students is expected to be stable, while new international admissions, study-abroad and ESL enrollment should be lower. It is likely there will be a healthy increase in graduate enrollments for the 2020-21 academic year, as students graduating this spring are now much less likely to get a job in the face of the pandemic, as well as the anticipated recession. Many of those students will elect to transition to graduate school. Historically, enrollment growth has been very strong during economic down cycles, one of the reasons the asset class is known to be recession-resistant.
How do you expect higher education to react to this environment and communicate regarding the fall semester?
Higher education reacted with remarkable speed in March with a virtually universal conversion from in-class instruction to online learning. Many extended spring break to accomplish that, but nevertheless, that was a Herculean accomplishment assisted by the fact most all already had online learning platforms they could access. Notice that K-12 did not have a fraction of that capability and thus has struggled. Getting the faculty who had never taught online before to make the conversion on short notice was a taller order. As of the first week of May, presidents at more than 120 universities have already declared their campuses will be open this fall. It will be important for presidents from most universities yet to do so to join their colleagues and also make strong and early public commitments to reopen campuses in the fall. That undoubtedly will require social distancing in all aspects of campus life, and likely require a temporary discontinuation of instruction in large lecture halls and perhaps a hybrid model with some courses remaining online, with the majority back in the classroom. Such a declaration will be helpful for all—administrators, faculty, staff, parents and students—to solidify their plans for the fall. As part of reopening, it is also expected that special protocols for social distancing will be applied to on-campus housing. Certainly halls with community bathrooms and central HVAC systems will be problematic and could be shuttered permanently. Many universities will revert to single-occupancy rooms, as opposed to historically more common doubles or triples. This could result in de-densifying the housing on campus this fall by 20% to 50%. That demand would move off campus, largely to purpose-built student housing where bed-to-bath parity design and packaged HVAC units are features already social-distance friendly.
Where do you see student housing values and cap rates headed once classes resume on campus and why?
Once the COVID-19 pandemic is under control in the U.S. and our universities are reopened for classes this fall, I would expect pricing and cap rates to return to pre-virus levels and perhaps even see some cap rate compression. Driving that outcome is the fact that student housing will have again proven its resiliency in challenging economic times—similar to how it performed during the Great Recession. Rent collections have proven on par with Class A apartments and better than Class B and C multifamily during this pandemic. As we will likely be in a recession once the spread of the virus is contained, student housing’s recession-resistant characteristics will become of great interest again to institutional investors. Assuming the asset class gets through the pandemic with strong performance, this will reinforce or bolster its reputation.
What types of student housing do you expect to perform best after the pandemic and what types, if any, do you see struggling?
I would expect that student housing located near America’s largest public universities that are members of the Power 5 Athletic Conferences and located in college towns would experience the best performance. A survey of students and parents conducted in March by Maguire Associates revealed that the universities most likely to suffer potential enrollment impacts for the 2020-21 academic year would be those located in big cities like New York, Boston, Philadelphia, Chicago, Los Angeles, etc., where the density of population and social-distancing challenges have been most apparent during the pandemic. The Maguire survey also demonstrated that a small minority of families (15% of students and 20% of parents) may consider selecting a university closer to home for next year. That means the large majority (73% of students) indicated their intended university selection remained unchanged despite the pandemic. Interestingly, as most incoming freshman and their families have not been able to take a campus visit this spring, the university’s housing facilities is the area of most interest to these students. That being said, most universities are accepting a higher percentage of applicants for the fall in an effort to bolster enrollment.
Frederick W. Pierce IV is president and CEO of Pierce Education Properties, a Top 15 national student housing company that owns and operates more than 15,000 beds at 22 universities in 17 states. He is also a trustee emeritus of the California State University board of trustees and currently serves as chair of the board of Trustees at Franklin Pierce University in New Hampshire, chair of the board of San Diego State University’s Fowler College of Business, board member of SDSU’s Campanile Foundation (Endowment) Board, and board member of Sonoma State University’s Wine Business Institute in California.
UB’s coronavirus page offers complete coverage of the impacts on higher ed.