Boomtime for rental apartments investors

by Steve Randall02 Oct 2019

Investors in rental homes in the US are seeing strong demand and rent increases.

According to data from real estate technology and analytics firm RealPage, Inc., occupancy as of 2019’s third quarter climbed to 96.3% from 95.9% a year earlier.

That puts today’s occupancy rate roughly in line with the all-time high of 96.4% achieved in late 2000 as demand for rental apartments has risen to an unusually high level in recent months.

There were 118,000 units occupied during third quarter with an absorption pace 24% above average demand posted in the third quarter of the previous five years.

“Apartment leasing activity accelerates during the warmer weather months, and demand was especially strong in this year’s core period of product demand,” according to RealPage chief economist Greg Willett. “New household formation continues, and rentals are capturing a sizable share of the resulting housing demand. At the same time, loss of existing renters to home purchase remains limited relative to historical levels.”

Rents rise
Annual rent growth was 3% as rents for new leases gained 1.2% in the third quarter, taking average monthly rent to $1,416.

Phoenix, AZ, saw the largest hike in rents year-over-year at 8.2% closely followed by a 7.5% gain for Las Vegas.

“While a 3% bump in rents is significant for individual renter households, it’s perhaps surprising that tightened occupancy hasn’t led to even bigger price growth,” Willett said. “As we talk with apartment owners and operators, they are expressing concerns about the possibility of slowdowns in economic growth and apartment demand during the near term. If demand cools, it can be better to sacrifice a little on rent achievement in order to go into that more competitive leasing environment with maximum occupancy.”

New supply
There are around 538,000 market-rate apartment properties under construction that will be finished during roughly the next 18 months as building in the US apartment sector remains at three-decade highs.

“While the apartment sector’s performance has been terrific of late, the amount of product under construction does point to some near-term risk,” according to Willett. “If economic growth slows, it will be tough to sustain rent growth for luxury units at today’s level, when so much top-tier product is conducting initial leasing.”