Sean Lyons Why Secondary and Tertiary Markets Are Winning Back Investor Attention in Student Housing

For much of the past cycle, capital for purpose-built student housing has chased a familiar list of names: the flagship public universities and the Power Four athletic conferences. The markets institutional buyers already knew by seeing them play sports on their TV’s. That instinct hasn’t disappeared, but it’s no longer the entire story. A combination of pricing discipline, cap rate spreads and a maturing supply picture is pushing a growing share of capital – both private and institutional, alike – towards secondary and tertiary university markets. For owners and operators in these markets, that shift is opening a real window to transact that has not been seen in previous cycles.

The Cap Rate Story: Where the Spread Lives

Cap rates remain the clearest signal of where investor appetite is landing. Purpose-built student housing near flagship Tier 1 and Tier 2 universities has largely held in the 4.5 percent to 5.5 percent range through the recent rate cycle. This has been a level of resilience that outperformed conventional multifamily broadly. But that stability comes at a price as the entry costs at those flagship markets now assume near-perfect execution, leaving little room for a value-add thesis or a mispricing to exploit.

When you move down the market tier, the math starts to change. Class B assets in secondary markets are generally trading in the 6.5 percent to 7 percent range, while Class C product in tertiary markets is regularly clearing 7 percent and, in some cases, pushing toward 8 percent to 9 percent. That 100 to 300 basis point spread between flagship and secondary/tertiary product isn’t just noise. Today, it is the difference between a fully priced core deal and a return profile that still leaves room for operational upside. For buyers underwriting to a levered internal rate of return rather than simply chasing the lowest cap rate, that spread becomes the entire thesis.

It’s worth noting that this isn’t unique to student housing. Broader commercial real estate is seeing the same dynamic: primary-market, Class A assets across property types are priced to perfection while secondary and tertiary markets carry wider spreads with more room for value creation. Student housing is simply one of the sectors where that gap is currently the most pronounced because the underlying demand fundamentals in many of these smaller university markets are proving sturdier than investors expected.

Enrollment Is Doing Something Unusual: Diverging

The old assumption that ‘enrollment goes where the brand is’ is breaking down in a useful way for secondary markets. Public four-year universities grew enrollment in the low single digits over the past year, while private colleges saw a modest decline. This divergence has created a concentrated demand around large public flagships and, increasingly, their less-heralded regional peers. At the same time, some of the more interesting demand growth is showing up at what one recent industry analysis called ‘lesser-known public universities.’ These are schools where enrollment momentum, scholarship investment and rising competitiveness at the very top public schools are pushing students toward the next tier down.

That matters for secondary and tertiary market investors because it undercuts the old logic that these markets were simply ‘leftover’ opportunities. Schools in the 15,000 to 40,000 student enrollment range – think regional flagships and strong, mid-major public universities across the Midwest and South – are increasingly where enrollment growth, tight on-campus bed inventory and thin competitive purpose-built supply intersect. Tier 1 coastal names are well covered by institutional capital already; the more interesting supply-demand imbalance is one level down.

Construction Is Slowing – and That’s the Real Catalyst

If cap rate spread is the entry point, moderating new supply is what’s turning secondary-market interest into actual transaction volume. After several years of aggressive development and record rent growth, construction starts across the student housing sector are pulling back. Roughly 30,000 new beds are expected to deliver in fall 2026 across 37 campuses. This is a modest increase over 2025’s delivery pace, but well below the volume seen at the height of the last development cycle.

That slowdown matters most in exactly the markets that saw the heaviest recent supply additions, where absorption is now catching up to deliveries and pushing the sector toward a more balanced, fundamentals-driven phase rather than one dictated by broad macro sentiment. In practical terms, owners in secondary and tertiary markets that spent the past two to three years competing against new lease-up product are starting to see that competitive pressure ease, which supports both occupancy and rent growth heading into the next academic year.

Who’s Actually Buying

The buyer pool moving into these markets is more varied than it was even eighteen months ago. Institutional capital remains selective and concentrated on flagship, supply-protected assets, but private capital is filling the gap below roughly $50 million in deal size – often with more flexible structures than institutional buyers can offer. Meanwhile, platform consolidation among the larger operators is accelerating, with several sizable acquisitions over the past year signaling that scale and operational efficiency are becoming as important as market tier alone.

There is also a growing recapitalization trend worth watching. Owners who aren’t willing to transact at current market pricing are increasingly using equity restructuring to access liquidity without an outright sale, while institutional buyers use those same structures to deploy capital into stabilized assets without paying a full acquisition premium. Expect this to be a growing share of the capital markets activity through 2026 and into 2027 – particularly in secondary markets where full-price exits are harder to find than in flagship metros.

What This Means for Owners in These Markets

For an owner sitting on a well-located asset near a growing regional university, the current environment is arguably the best-selling window in several years. Cap rate spreads make secondary and tertiary product genuinely attractive to a widening buyer pool; enrollment fundamentals in many of these markets are holding up better than headlines suggest; and new competitive supply is easing rather than intensifying. This unique combination of buyer demand, structural support and a supply picture that’s finally turning favorable is a set of conditions that do not come around often in this sector.

The caveat is that not every secondary or tertiary market is created equal, and buyers underwriting these deals are doing so with real discipline. University strength, enrollment trajectory and local competitive supply matter more than ever. Capital isn’t flowing indiscriminately into every non-flagship market; it’s flowing selectively into the ones with the clearest demand story. Owners considering a sale should expect buyers to dig into those fundamentals closely. But for assets that can tell that story well, investor interest is real and it has continued to grow in 2026.

– Sean Lyons is partner with Triad Real Estate Partners.