Hollywood – September 16, 2015

EXPERTS FORECAST CONTINUED GROWTH INTO THE NEXT SEVERAL QUARTERS

Market conditions have converged to create strong demand for multifamily rental properties, and indicators show that trend is likely to continue.

“The sector is being buoyed by a series of tailwinds, including an improving national economy, above-trend household formations by the Millennial generation and the movement of Baby Boomers into urban apartments,” wrote Paul Bunby for GlobeSt.com.

Demand has led to growth in rent – 6.2 percent growth during the first half of 2015 ­– and experts from Yardi Matrix, a multifamily intelligence company, expect that “demand for apartments will continue to be above-trend for at least the next couple of years.”

National Real Estate Investor reported that rent growth hit a 15-year high point and pointed to delayed new apartment construction as one reason for low vacancy rates in existing properties.

Renter demographics

NRE also noted that the renter demographic is changing. As noted above, Baby Boomers and Millennials alike are driving much of the demand for rentals, but it’s interesting to note that it’s not just the younger Millennials who are opting to rent. Couples in their early- to mid-30s, with children, are now less likely to leave their rentals to purchase single-family homes.

“That young urban family segment is becoming more and more important to the apartment industry’s health,” Greg Willet, vice president of research and analytics for MPF, told NRE.

His use of the phrase “urban family” is another point of note. In the past we havehighlighted a trend toward more “urban” multi-use environments making their way into the suburbs, and we can imagine that those suburban rentals are appealing to these young families as well.

A Yardi Matrix report also shows strong demand from a segment of the population who are renters by choice. The company defines them as having:

“…wealth sufficient to own, but have chosen to rent. Discretionary households, most typically a retired couple, or single professional, have chosen the flexibility associated with renting over the obligations of ownership.”

Atlanta, for example, ranked in the top five nationwide for rent growth in the “lifestyle” segment, posting more than 8 percent growth in that area, according to Yardi.

Economic indicators supporting multifamily market

In the August 2015 report by Yardi Matrix, the research firm indicated healthy fundamentals supporting the multifamily sector, saying, “The demographic and demand trends that have produced historically low apartment vacancy rates will not be easily turned around.”

One factor that supports the multifamily market is job growth, and Yardi reported on Sept. 10, 2015, that the number of job openings rose to record levels this month:

”…the Bureau of Labor Statistics reported that the number of job openings nationwide again rose, to 5.8 million as of the last business day of July, up 22 percent over the year. That’s as high as this particular metric, which has been published since 2000, has ever gone. Significantly, it means that employers are looking for employees in greater numbers than at any time since the economy crawled out of the recession; that they’re relatively optimistic about the state of the economy; and (maybe) that they’ll be willing to pay more for the employees they have to keep them.”

In addition, according to the report, those jobs are not limited to one industry or one region: They are distributed well across geographic areas and business sectors. Specific to multifamily, this economic indicator benefits the market “as workers with either new jobs or improved incomes form new households or move up to better apartments.”

Multifamily investor confidence

Investors are showing confidence by investing heavily in the multifamily market, according to a CBRE report, which shows 36 percent growth in multifamily investing this year – the highest growth in history, and the totals have surpassed the 2006 peak.

“Investment in U.S. multifamily product continues its extraordinary run, reflecting solid confidence in future market and asset performance. Drawn in by solid fundamentals, investor interest in the sector remains high, per sales activity and underwriting trends,” said Brian McAuliffe of CBRE.

This report also points to high rental demand as driving the trend and cites a 30-year low for home ownership (63.5 percent), which indicates that the market can absorb new apartment supply.