DemographicsConsumer and Home Design Trends

Apartments to Get a Double Dose of Demand: Jobs and Demographics

Lesley Deutch photo

Lesley Deutch

May 5, 2011
Rising Rents: Apartment conditions are improving around the country. Vacancies are falling, rents are rising. REIS reported that 77 of the 82 metro markets for which they collect data had positive first quarter absorption, 79 experienced an improved occupancy rate, and 79 experienced increasing effective rents.
Jobs and Demographics: Job growth is driving the improvement but, as we mentioned in our last report, ‘Apartment Market Has Room To Run’, apartment market demand is also set to benefit from a major demographic shift. Additionally, the aftermath of the for-sale housing crisis will also create tremendous rental demand.
Too Much of a Good Thing: The positive outlook on apartments is no secret. Cap rates have plummeted, and apartment REIT stocks have soared. However, our market research clearly shows that apartment rent growth will not continue unabated, for two reasons:
  • As rents continue to increase, the for-sale housing markets will begin to look more attractive.
 
  • Many tenants simply cannot afford a rent increase, and will choose to downgrade the quality of their building or take on roommates.
Excess Vacancy: Additionally, the housing markets with the highest excess single-family vacancy will present some competition to the apartment rental business, especially as rents continue to climb. The states with the highest excess vacancy include Nevada, Florida, Michigan, Georgia and Rhode Island. Homes are not perfect substitutes, however, due to location differences and a very different household profile. The states with the best single-family affordability will also present competition to the apartment sector.
JBREC Housing Market Affordability: Most housing markets across the country are weak, and the difficulty in obtaining mortgages, combined with the large amount of distress and foreclosure activity will likely not result in significant competition to the apartment sector in the next 2-3 years. However, it is important to monitor the housing markets in conjunction with the apartment markets as the two are inextricably linked.
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About The Author

Lesley Deutch photo
Lesley Deutch
Managing Principal
Lesley has more than 25 years of experience consulting with executives in the finance and real estate industries throughout North America. She works across a wide spectrum of industries including apartments, for-sale housing, high-rise development, urban projects, single-family rental, building products, and commercial developments.

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