November 16, 2015
This is the first of three in-depth examinations of the multifamily sector that Connect Media will publish this week. We will also have a panel to cover this topic at Connect Westside Los Angeles on December 2.
Those involved with the multifamily segment of commercial real estate understand two basic facts:
1. Multifamily is enjoying its hottest growth streak since the Great Recession.
2. Young adults, also known as Millennials, are driving part of that growth.
There are other truths as it pertains to this sector:
• While Millennials are the main reason for incredibly high rents and low vacancies, this age cohort is actually delaying household formation.
• Additional issues, such as older renters and supply scarcity, are also leading to lower vacancies and higher rents, a trend that is likely to continue for several more years.
These factors mean that the multifamily sector will remain robust for the next few years.
The Hot Apartment Market
The latest data from Axiometrics Inc. shows industry doing quite well, with a rent-growth rate of five percent and vacancies dropping below five percent. In fact, Axiometrics points out that annual effective rent growth is at its highest since July 2011.
Furthermore, the vacancy of five-percent-plus rate means the market is full, by Axiometrics’ standards. A full market is one in which supply is easily absorbed – and rent rates can be pushed.
Axiometrics does point out that rent growth typically moderates during the latter part of a year. But given that “2015 has outperformed every post-recession year for the past six months . . . there might not be much of a slowdown,” wrote Stephanie McCleskey, Axiometrics’ vice president, research, in a recent blog post.