Demand for Apartments Remains Strong, but Supply May Be Catching Up

Rents have gotten out of control in most metro areas of the country, as demand for apartments has outpaced supply in many places for years. A new study shows that this trend may be changing somewhat as new supply floods the market in the next few years.

Online real estate digital marketplace Ten-X Commercial has released its latest U.S. Multifamily Market Outlook, including the top five “Buy” and “Sell” markets for multifamily real estate assets.

Investors use Ten-X Commercial to gauge where the opportunities are, but renters will find the information useful in understanding the market trends that impact their own wallets each month.

The report shows that while fundamentals have begun to soften, demand across the apartment market remains strong due to positive demographic trends that continue pushing millennials and other Americans to forgo homeownership in favor of renting.

These Markets Remain Hot:

This report pinpoints Sacramento, Calif., Phoenix, Las Vegas, Raleigh-Durham, N.C., and Jacksonville, Fla., as the five markets where investors should consider buying multifamily properties.

Favorable demographic trends are on full display in these regions, where employment stands at record or near-record levels, and a combination of high demand and light supply pipelines are bolstering rent levels.

While These May Have Reached a Peak:

The Ten-X analysis also identifies New York City, San Francisco, San Jose, Calif., Washington, D.C., and Oakland, Calif., as markets where investors may consider selling multifamily assets.

These mostly major markets seeing an onslaught of new supply pushing up vacancies and rents may already have reached their peaks, leaving them vulnerable to diminished returns for investors.

Completions across the apartment sector slackened in the first quarter after a record 2016, totaling just 39,000 units.

Vacancies Are Rising in Some Places. Will There Be Deals for Renters?

Vacancies rose by 10 bps to 4.3 percent in the first quarter, remaining flat over the last year.

While apartment vacancy has plateaued in most markets, the supply pipeline is unevenly distributed throughout the country, making certain markets more vulnerable to rising vacancies.

On a national level, the massive influx of new supply is expected to increase the vacancy rate to 5 percent by 2018 before declining demand pushes it to 6.2 percent by 2020 during a modeled economic downturn.

What does this mean for renters? It means that in some markets there may be some degree of over-supply – and this may put some downward pressure on rents in the next few years.

If vacancy rates increase in your area it may be a good time to start checking around for a better deal.

Copyright Today’s Credit Unions