Student & Senior Housing See Resilient Fundamentals Amidst Headwinds
By Majid Radaei, RadCRE · · Industry Insights
Despite broader CRE challenges, student housing recorded an estimated 4.9% rent growth for the 2024-2025 academic year, while senior living transaction volume reached $11.5 billion in 2023.
Student Housing Outperforms: Strong Enrollment Drives Demand
The student housing sector continues to demonstrate remarkable resilience, largely propelled by strong undergraduate enrollment figures and limited new supply in key university markets. Despite persistent inflation and higher interest rates, the asset class has maintained robust fundamentals. According to data tracked by RealPage, pre-leasing for the 2024-2025 academic year across the CoStar Top 200 universities reached an impressive 76.5% by February 2024, significantly higher than the 67% recorded at the same point in 2023. This strong demand has translated into notable rent growth, with average effective rents projected to increase by an estimated 4.9% for the upcoming academic year.
Investment activity, while tempered by financing costs, remains targeted towards well-located properties near R1 universities. For example, Harrison Street Real Estate Capital, a prominent investor in the space, continues to pursue strategic acquisitions. In late 2023, The Scion Group, in partnership with other institutional investors, acquired a portfolio of six student housing properties totaling over 3,000 beds across various university markets from an undisclosed seller, underscoring ongoing institutional interest in the sector's defensive characteristics.
Senior Living Sector Navigates Recovery with Increased Transaction Volume
The senior living sector, encompassing independent living, assisted living, memory care, and skilled nursing facilities, is steadily emerging from the operational challenges of the pandemic. Occupancy rates have shown consistent improvement, signaling a renewed demand from an aging demographic. NIC MAP Vision data indicates that senior housing occupancy for the 31 primary markets reached 85.3% as of Q4 2023, up 1.3 percentage points from the previous quarter and a significant recovery from its pandemic low of 78.0% in Q2 2021.
Transaction volume in the senior living space saw a notable uptick in 2023, reaching approximately $11.5 billion, according to MSCI Real Assets (formerly Real Capital Analytics), an increase from the prior year, albeit still below pre-pandemic peaks. This activity is driven by both institutional and private equity players recognizing the long-term demographic tailwinds. In a significant deal, Welltower Inc. (NYSE: WELL) continued to expand its footprint, acquiring multiple senior housing portfolios throughout 2023 and early 2024, often in partnership with experienced operators. Furthermore, Sabra Health Care REIT's (NASDAQ: SBRA) recent acquisition of a portfolio of 19 skilled nursing facilities for approximately $450 million in early 2024 highlights the continued monetization and repositioning of assets within the sector.
Our Take
"Both student housing and senior living stand out as sectors with compelling demographic drivers, offering a defensive hedge against broader economic uncertainties. For student housing, the consistent demand for higher education, especially from top-tier universities, makes these assets highly resistant to downturns. Our underwriting for student housing assets places a premium on proximity to campus and modern amenities, which command strong pre-leasing and rental growth even in higher interest rate environments. Regarding senior living, the 'silver tsunami' is not a hypothetical – it's a structural demographic shift that guarantees demand for decades. While operational complexities persist, strategic investments in assisted living and memory care facilities, particularly those with strong operating partners, are now ripe for strong risk-adjusted returns as occupancy rates continue their upward trajectory. We're actively advising clients on structuring optimal capital stacks for these specialized asset classes, navigating everything from bridge loans (SOFR + 300-600 bps) for value-add plays to more conventional permanent financing when available." — Majid Radaei, Founder of RAD Commercial Realty
RadCRE provides comprehensive advisory and investment banking services to clients seeking to acquire, finance, or dispose of student housing and senior living assets, leveraging our deep market insights and robust financial modeling capabilities to identify and execute on value-driven opportunities.
Tags: student housing investment, senior living investment, CRE fundamentals, real estate financing, RadCRE advisory
Sources: RealPage, NIC MAP Vision, MSCI Real Assets (formerly Real Capital Analytics), CoStar, GlobeSt, Welltower Inc. Investor Relations, Sabra Health Care REIT Investor Relations