With the U.S. homeownership rate declining to a 19-year low in 2014, the multi-family rental property market continued to outperform inflation, says Marcus & Millichap, the real estate investment brokerage firm that specializes in apartment property sales.
Multi-family market watchers pay particularly close attention to demographic trends, including job growth, wage growth, population growth and new household formation.
Key property performance metrics are vacancy rates and rental rates. Sophisticated operators now track vacancies and adjust rates in real time (as they do in many real estate segments) to make the most of demand.
Other highlights from the Marcus & Millichap National Apartment Research Report 2015:
- The national apartment vacancy rate dipped as low as 4.2 percent during the year, ending 2014 at 4.7 percent.
- The number of new units delivered in 2014 totaled 238,000, marking a 14-year high, with completions met by a surge in pent-up demand of 270,000 apartments.
- Mid- to lower-tier assets led effective rent growth of 3.8 percent for 2014.
- Supply totaling 210,000 units in 2015 will likely surpass demand for 186,000 rentals, increasing vacancy to 4.8 percent.
- Overall effective rent growth for 2015 is expected to be in the 3.0 to 3.5% range.
- Yields for Class A assets in top-tier markets may flatten while cap rates may tighten on assets outside core markets and for Class B and C assets.
Assessing the investment outlook for multi-family rental properties, Marcus and Millichap notes that “the forces shaping demand in this cycle do not appear to be tailing off, creating and sustaining demand momentum in a period of historically low vacancy rates.”
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