Student & Senior Housing See Resilient Demand Amid CRE Headwinds

By Majid Radaei, RadCRE · · Industry Insights

Despite broader CRE challenges, student housing and senior living sectors exhibit robust fundamentals. Student housing pre-leasing hit 75.3% for Fall 2024, while senior living occupancy continues recovery, nearing pre-pandemic levels.

Student & Senior Housing: Resilient Niche Sectors in a Shifting CRE Landscape

As the broader commercial real estate (CRE) market navigates a complex environment of higher interest rates and evolving demand, niche sectors such as student housing and senior living continue to demonstrate remarkable resilience and robust fundamentals. These asset classes, driven by demographic imperatives rather than cyclical economic fluctuations, are attracting increasing investor interest.

Student Housing Maintains Strong Pre-Leasing & Rental Growth

The student housing sector is exhibiting strong performance, fueled by consistent enrollment trends and a persistent supply-demand imbalance in many university markets. According to data released by Yardi Matrix and reported by CoStar, nationwide purpose-built student housing (PBSH) pre-leasing for the Fall 2024 academic year reached an impressive 75.3% as of March 2024, significantly higher than the 67.2% recorded at the same point last year. This strong pre-leasing activity is translating into substantial rental growth, with average effective rents increasing by approximately 6.5% year-over-year. Markets like Tempe, Arizona (Arizona State University) and Gainesville, Florida (University of Florida) have seen even higher rent growth, with some properties achieving double-digit increases.

Institutional investors are recognizing this stability. Recent significant transactions include The Scion Group's acquisition of a student housing portfolio from Harrison Street Real Estate Capital, demonstrating continued confidence in the sector's long-term prospects. While competition remains fierce for core assets, value-add opportunities in secondary and tertiary markets with strong academic institutions are drawing attention.

Senior Living Sector Continues Post-Pandemic Recovery

The senior living sector is also on a steady recovery path, with occupancy rates steadily climbing back towards pre-pandemic levels. Data from NIC MAP Vision indicates that national senior housing occupancy reached 85.5% in the first quarter of 2024, a significant improvement from its pandemic low of 78.0% in Q2 2021. This recovery is driven by robust demand from an aging demographic, coupled with a constrained new supply pipeline. Staffing shortages, while still a challenge, are improving in many regions, allowing operators to increase resident intake.

Investment activity reflects this positive trend. Welltower Inc., a leading senior housing REIT, recently announced several strategic acquisitions and joint ventures across its integrated senior housing platform, signaling strong conviction in the sector's trajectory. Capital providers are re-engaging, with lenders becoming more comfortable with senior living bridge financing, often seen with spreads ranging from SOFR + 300-600 basis points for well-regarded sponsors and properties with clear value-add propositions.

Construction and Capital Markets Outlook

Despite the positive demand fundamentals, both sectors face headwinds from elevated construction costs and higher capital costs. Development starts have moderated in both student housing and senior living due to these factors, which could further exacerbate supply constraints in the coming years. For existing assets, refinancing remains a key challenge, particularly for properties acquired or developed during periods of lower interest rates. However, the strong operational performance and demographic tailwinds are making these sectors attractive to alternative capital sources, including debt funds and private equity.

RadCRE Perspective

"The resilience of student housing and senior living isn't just about demographics; it's about necessity-driven demand that insulates these assets from some of the volatility we see in other asset classes like office or even some retail, which are more susceptible to economic cycles and evolving usage patterns," notes Majid Radaei, Founder of RAD Commercial Realty. "We're advising our clients to look beyond the immediate rate environment and focus on long-term demographic trends. For student housing, target universities with strong enrollment growth and limited new supply. For senior living, it's about the quality of care, operational efficiency, and a clear path to driving occupancy in core markets. We are actively seeing opportunities to structure creative financing solutions, leveraging our relationships with bridge lenders and preferred equity providers to bridge funding gaps, especially where traditional CMBS or agency financing might not pencil out initially due to current rate benchmarks. A well-underwritten senior living or student housing deal with experienced sponsorship can still command competitive financing, with some bridge deals offering SOFR + 350-450 bps for strong operating assets. It’s about understanding the asset's true value proposition and presenting it strategically to the right capital partner."

Both student housing and senior living present compelling opportunities for investors seeking defensive plays with robust demand drivers. RadCRE continues to advise clients on strategic acquisitions, dispositions, and tailored financing solutions within these specialized asset classes, leveraging our deep expertise to navigate current market dynamics and capitalize on long-term growth trends.

Tags: student housing investment, senior living occupancy, CRE capital markets, RadCRE, real estate financing, specialized asset classes

Sources: Yardi Matrix, CoStar, NIC MAP Vision, Welltower Inc. Investor Relations, The Scion Group, Harrison Street Real Estate Capital