October 31, 2018
The multifamily sector — particularly when it comes to rental units — continues to experience strong growth, thanks to the economy. Hunt Real Estate Capital’s recent report pointed out that the economy added 201,000 jobs in August 2018, and the unemployment rate was 3.9%. The strong job market and growing population has kept the national apartment vacancy rate under 5%, which is considered “full” by most standards. Rents are also trending upward, hitting $1,405, according to Reis data. This equates to a 4.7% annual increase.
However, digging a little beneath the data, the vacancy rate remains significantly higher among Class A product. Vacancy among the higher-end apartments stood at 6.3%, mainly due to an increase in deliveries. However, Class B and Class C vacancies were steady at 3.5%. Unlike what is going on in the Class A sector, “tight vacancy in the Class B/C space is partly due to an almost non-existent construction pipeline, with just 18,000 units from 2014 to present,” Hunt Real Estate Capital analysts noted.
Meanwhile, Treasury rates are continuing to climb, with the spread between 10-year and 2-year notes below 30 basis points. Hunt Real Estate Capital analysts forecast that the spread will likely invert within the next few quarters.
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