Canada has a student housing gap waiting to be filled

Student housing is big business globally, but in Canada there’s a gap in the market, and with colleges and universities across the country slated to reopen in September, there are no lingering questions about demand.

“Historically, we have done all our pre-leasing between January and April for the following September school year. This year it’s been quite different because, as you may recall, April was a disaster across Canada with no vaccines in sight and getting hit by the third wave, so leasing was at a standstill with nobody committing. Starting in May it’s been a total three-sixty and what we’re seeing now is students who were waiting on the sidelines to see what was going to happen know schools will reopen. Almost every college and university across Canada has announced they’re going to reopen,” said Sanjil Shah, managing partner of Alignvest Student Housing. “We’ve been doing robust activity since the first week of May, doing 80-100 leases per week in our portfolio.”

As a global asset, purpose-built student accommodations is worth $200 billion, with $15-20 billion invested every year, but Shah says that institutional investors find Canada a difficult country in which to scale investment. They would prefer investing upwards of $300-400 million in a platform that has infrastructure, processes, people and an operating business rather than purchasing buildings individually. However, it would be well worth finding ways to scale, says Shah, considering that Alignvest Student Housing, which is valued at $700 million, had 90% occupancy across its portfolio during the pandemic.

“Student housing trades at a discount, or higher cap rate, than multifamily for a couple of reasons: lack of institutional capital, so less competition, because there are very few buyers for these assets, and secondly, it’s not passive real estate by any stretch of imagination. Multifamily real estate is so rich and cap rates so low because it’s passive real estate and as close to investing in a bond as you can get,” he said. “Student housing is anything but that. We have 50% annual turnover of our beds and it all happens on the exact same day—September 1 is make or break day in this industry. It’s not like having a multifamily building because if your bed is vacant on September 1, a student has found somewhere else to live and you will be vacant for the next 12 months. To really optimize leasing and management, you have to have eyes on your business to fill your beds. We have put in place infrastructure and processes and we can optimize returns.”

Alignvest Student Housing’s portfolio reflects tenants’ evolving tastes—gone are the days when a single-family home was rented out by the bedroom, and there’s scant desire to share dormitory-style rooms with upwards of 20 people sharing a single bathroom.

“Those types of accommodations are feeling the brunt of COVID-19, with kids not wanting to live there anymore. There’s been a flight to quality, by which I mean students are looking for better accommodations this year than they have in past years,” said Shah. “Private bedrooms are a must—nobody wants to share a bedroom anymore and 99% of our bedrooms are privately occupied, with en-suite bathrooms highly desirable. Eighty-percent of our bathrooms have no more than two kids sharing them, and we’re seeing pretty robust demand for those types of configurations.”