Rent for student housing facilities may decline

If Covid 19 crisis continues for long, the rent for student housing facilities may decline by 20 to 25 percent in the next few months. The sector may also consolidate with some smaller operators exiting, resulting in stronger players with a sustainable financial and operational model, a new report has said.
The current situation of COVID-19 has resulted in major changes affecting all four stakeholders of this segment- the colleges/educational institutions, students, asset owners and the student housing providers/managers.

In case the spread of COVID-19 continues for a longer time frame, the real estate prices, or rent for facilities, may undergo decline by 20-25 percent in the next few months and operators with a longer-term view can look to lock in these rentals, the report by EY has said.

“The B2C model, where most students pay monthly, has seen a larger impact. Students who have left are less likely to pay their monthly rentals for the remaining two months. But most operators have two months of refundable security deposit which may help them avoid revenue shortfall, though students may use force majeure as a reason to claim refunds,” said Gaurav Karnik, Partner and National Leader – Real Estate, EY India.

A few universities have reached out to operators asking them to collect fees on a monthly basis rather than collecting a full year in advance to reduce the cash flow impact on parents. Some operators are hoping for regulatory intervention that supports rental exemptions for tenants in such scenario. However, the regulation may also force the operators to pass on the savings to their students, the report said.

The report noted that many operators may lose out on three to four months of revenue due to the delay in commencement of the academic sessions. Some costs will also increase since there will be greater pressure on sanitation and cleanliness. If students decide to practise social distancing or operators offer it as a differentiator, they may also see lower occupancy.

In terms of bed configuration, on an average, the number of three or more bed categories to other categories is 45 percent. Assuming a 15-20 percent reduction in capacity, the effective loss in revenue for a 200-bed facility would be approximately Rs 15 lakh per annum which results in about 40 percent reduction in margin. A part of this can be recouped through higher fees