Demographics Continue to Power the Rental Market
Digested from GlobeSt.
While growth is slowing and vacancies are projected to increase, demand from 18 to 34-year-olds still living with their parents may provide a new source of growth.
For years, people have been predicting an apartment market slowdown. But the apartment industry continues to ride a demographic-driven wave of growth.
Still, fundamentals are becoming spotty, according to Paul Bubny, Managing Editor of Real Estate Forum and GlobeSt.com. During Q1, vacancies rose 10 basis points to 4.3 percent after remaining flat over the past year, according to data from Ten-X Commercial. With 330,000 apartments coming online in
2017, Ten-X projects the vacancy rate to hit 5 percent by 2018 before declining demand pushes it to 6.2 percent by 2020. Citing Reis, Bubny says effective rents only rose 0.4 percent in the first quarter.
“With it all, though, demographic trends continue to prop up the multifamily market, Ten-X says,” Bubny writes. “Household formations remained steady at a healthy pace of around 1.6 million in ‘16. A solid labor market continues to fuel absorption, as debt-ridden millennials increasingly delay marriage and homeownership in favor of renting.”
As employment and wages rise, the 31 percent of 18- to- 34-year-olds still living with their parents may finally form households, offering a new driver of demand.
“The current state of the multifamily sector is a perfect example of the time-honored notion that ‘demographics is destiny,’” Peter Muoio, Chief Economist with Ten-X tells Bubny. “While softening, fundamentals indicate that the sector is poised for a slowdown, that shift has yet to arrive in earnest.”