Dive Brief:
- Commercial real estate research firm Reis Inc. said multifamily renters can expect rents to keep rising in 2016, but at a more moderate pace, the National Real Estate Investor reported.
- Reis said developers delivered 188,000 new units in 2015 but will bring even more apartments online in 2016, pushing the vacancy rate up from 4.4% in the fourth quarter. Analysts also predicted, though, that the percentage of vacant apartments will stay relatively low in 2016, increasing only 10 to 20 basis points, even as new apartments open up.
- According to Harvard University’s Joint Center for Housing Studies, even in the wake of all the recent new construction, developers have still not caught up with demand. Last year, the total number of households grew by 1.5 million, but the nation’s housing stock only increased by 1.1 million units. However, the U.S. is expected to add 4.4 million new rental households by 2025 from population growth alone, which will create an even greater demand, according to the JCHS.
Dive Insight:
Even markets like Sacramento and California’s Inland Empire, which were ravaged by the housing crash, are relatively healthy, according to John Chang, first vice president of research services for Institutional Property Advisors (IPA). According to IPA, those areas are forecast to have vacancy rates of less than 3% for 2015, and the vacancy rates for the 10 markets forecast to have the highest will come in at 7% percent or less this year.
Chang said the optimistic forecasts are based on the assumption that millennials will form their own households as they start working. "They are getting jobs," Chang told the NREI, "and they are getting their careers started, and that is great news for the apartment industry."
Nevertheless, analysts said three things could throw a wrench into the apartment market: a rising homeownership rate, a slower-than-anticipated economy and a bad turn for the stock market.
However, Chang said that although increased homeownership could lower apartment demand, research indicates that the renters most likely to jump to owning a home are already renting homes, not apartments. He added that a Freddie Mac survey indicates 68% of apartment renters say they are happy with that type of housing.