RubinBrown Apartment Stats 2014

Executive Summary

Industry Update The multifamily rental housing industry posted a strong economic position in 2013, remaining consistent with its 2012 performance, if not in many cases, better. Capitalizing on the slowing improving economy, the apartment sector proved itself to be in a much financially different place than it was 4-5 years earlier when it bore the significant burden of foreclosures and housing failures. Much of this improvement over the last few years can be credited to strong demand, which continued to outpace supply in 2013. However, according to a multifamily market outlook published by Freddie Mac, the discrepancy between supply and demand is slowly disappearing as multifamily constructions starts rose 20% over 2012 and 80% over 2011. As noted in the study, supply could be expected to peak in the coming years, but is currently aligned with the start levels experienced pre-recession. Further, this increase in construction starts has been attributed to steady employment growth experienced in 2013 as the unemployment rate dropped 120 basis points from 2012. With demand continuing to exceed supply, growth in rents has been easy to come by as compared to previous years. In fact, as indicated by REIS, the national average for 2013 reflected a 3.6% increase in rents over 2012 vs. a historical measure of roughly 2.8% year over year. Further, vacancies posted a 2013 rate of 4.1% throughout the country vs. a 5.4% rate, historically. Renter demographics continue to play an important role in the apartment market as well. According to Freddie Mac, the number of renters rose by more the 5 million and 15% since 2006. Of this increase, 38% or nearly 2 million, are renting multifamily dwellings, defined as two or more units per building. The remaining portion of the increase consists of single family home rental, which currently comprises 37% of the total rental market, per Freddie Mac. However, it is important to note that the portion of single family home rentals is expected to slip back to its historical average of 33% as the for-sale home market steadily improves. This decline in single family home rentals would result in approximately 1 million households that will either turn to multifamily housing rentals or home ownership, if affordable. And, with single-family housing prices and interest rates on the rise, it is expected that home affordability will decline, which will further fuel the multifamily housing industry. Likewise, the Joint Center on Housing Studies of Harvard University reported that the industry could face an increase of 4.7 million more renter households by 2023. Additionally, it is not surprising to know that young adults comprise the largest share of all renters in the United States. But, what is more impressive is the fact that the Baby Boomers are starting to move out of the home ownership arena and into renting as they value its flexibility and conveniences available given the aging demographic of that Generation. Market Trends As noted above, 2013 proved to be a great year for the apartment sector. These positive trends are continuing into 2014, as rental growth and occupancy levels expect to remain consistent. Not only have these favorable outcomes led to a stronger financial position for the industry, but they have helped spur property value appreciation to pre-recession levels and have ultimately brought multifamily investors back into the market. According to Freddie Mac, increased investor demand can also be tied to lower risk along with low interest rates and lack of other quality investments that produce higher yields. Of course, coupled with investor appetite is the effect it has on cap rates, which currently hover nationally around 6.4%. Indeed, some markets on the coasts have experienced rates as low as 4%, yet they are anticipated to remain around 7% for years to come.

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