November 20, 2015
This is the last of three stories this week by Connect Media on the current drivers of the multifamily market. You can find our first two stories here and here. Check out more coverage on this topic at Connect Westside Los Angeles.
In all of the publicity about Millennials and apartments, there is one group that has been overlooked – the Baby Boomers.
Axiometrics’ Chuck Ehmann wrote that empty-nester baby boomers prefer renting to owning. Those between the ages of 55 and 74 have created, on average, 355,000 renter households per year, from 2006-2014, a number that includes single-family, townhome and condo rentals.
But the following age cohort, Generation X, also is interested in apartments. Ehmann explained that the 35- to 44-year-old age group is next in line when it comes to rental housing, averaging approximately 288,000 per year from 2006-2014.
Certainly, Millennials top the list of rental households, simply because of sheer numbers. But Ehmann said that the “increase in rental households headed by 18- to 34-year-olds increased by an annual average of only 44,000 since 2006.”
In other words, apartment owners and developers would do well to keep an eye on the older age cohort when it comes to apartment rentals.
Are there enough units to spur demand? Axiometrics’ Stephanie McCleskey doesn’t think so, writing that the apartment industry continues to “play catch-up for all the units not built during the recession and immediate aftermath.”
Most developers remember that real estate construction grounded to a halt during and immediately following the Great Recession. An Axiometrics permit report said that the construction halt during this time led to 500,000 multifamily units that were not built (based on the annual average of what WAS built from 1995-2008).
By the time apartment developers began delivering a decent number of new units to the market – beginning in late 2011 – demand was already outstripping supply, and continues to do so today.
The Crystal Ball
The combination of pent-up demand among Millennials who aren’t, as yet, independent, combined with higher rental demand among other age cohorts and continued supply catch-up means that the multifamily sector will remain strong for the next several years. But due diligence is a must before an investor jumps into this sector.
Although the apartment market is strong on a national level, it’s important to have an understanding about what’s happening at the market and submarket levels. Not all geographic areas are the best candidates for investment or development.