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Room for Apartment REITs to Rise

08/16/2011 | By Carisa Chappell

There's more room to increase rental prices in the apartment market, according to Doug Bibby, president of the National Multi Housing Council (NMHC).

Bibby sat down with REIT.com for a video interview to discuss trends in the commercial real estate industry's multifamily sector and the results of the group's recent survey on apartment market conditions.

The Market Tightness Index, which measures vacancies and rents, dropped to 82, which translates to roughly 8 out of 10 apartment markets witnessing favorable conditions, according to Bibby.

As a result of improving conditions, combined with a growing demand, Bibby said there is "absolutely" more room for rents to grow in the apartment market. He used the San Francisco Bay Area, where he says rents are below where they were in 2001, as an example.

"Some of those markets are quite volatile, so they bounce around a bit," he said.

Bibby said the demand for apartment units is strong. In addition, he said there's a lack of supply in the sector, especially considering the low level of market-rate apartments delivered during the past four years.

"We're not even really replacing what we lose each year to obsolescence and old age," Bibby said. "We're way behind the curve on this."

In terms of new construction, Bibby added that the council is already seeing an uptick in the number of permits issued. He said many NMHC members are now going through the entitlement process or are in the process of actually constructing "desperately needed" new units.

The types of apartment units being built have changed over the decades. Bibby said the new generation of renters, the echo boomers, will sacrifice size for location.

"They are looking for downtown units," Bibby said. "They want to be near the action, so you're seeing architects building smaller units, putting more amenities in them and being more creative with space."