Multifamily REITs Benefiting From Strong Demand for Rental Apartments

REIT magazine: March/April 2018

Multifamily REITs continue to enjoy strong demand for rental apartments. The total number of occupied units rose 283,000 in 2017, according to CoStar, a 40 percent increase in the growth of demand compared to 2016, and more than 75 percent above five years ago.

There is still a strong preference to rent rather than own among American households, even as the economy continues to recover from the housing crisis that began one decade ago.

Construction, however, has risen to meet this demand, which has left supply and demand roughly balanced for the nation as a whole. Vacancy rates edged slightly lower in 2017, to 6.3 percent, from 6.4 percent at the end of 2016. Current vacancy rates are a bit above their lows for this cycle, but remain well below the peaks reached during the recession.

Rent growth slowed in 2016 and 2017. Effective rents averaged $1,225 nationally in the fourth quarter of 2017, which was 2.4 percent above one year earlier, slightly faster rent growth than in 2016 but in contrast to 5.0 percent in 2015.

It’s natural to expect rent growth to slow from such a robust pace, but new supply has curtailed the ability of landlords to raise rents. Affordability has also limited rent growth, as the number of rent-burdened households is at a record high.

 

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