August 11, 2010

The Rental Sector Is Looking Up

June vacancy rates in the largest 64 markets in the country averaged 6.6%, down from 8.2% at the end of 2009, according to MPF Research. We certainly see the increase in rental demand in 2010, and it's been a little more, frankly, than most apartment experts had anticipated," said Mark Obrinsky, chief economist for the National Multi Housing Council.

This may be the brightest sector and only strong story in a dismal market. There is a real sense of confidence building in the rental sector based on a few strong factors not present in the rest of the housing market. Apartments never had the build out boom that homes did. High unemployment among echo boomers will keep a lid on  rentals catering to the 25-34 year olds in the short term. The echo-boom generation, almost 80 million strong, along with a large immigration trend and retirees coming into the city, coupled with a drastic pullback in housing construction, points to strong rent growth starting in 2011, notes Marcus and Millichap. Quite a rental pool indeed!

Reis reports a widespread consensus that there will be a supply shortage of multifamily rentals as early as next year. This constrained supply may lead to robust rent growth. The leading indicator for housing has to be jobs. A lack of job creation will keep echo boomers at home longer or doubling up in roommate situations. Retirees coming to the city from the burbs, may no be able to sell or rent and so will have to remain in large homes. The optimists would see this as a staging area for real growth in 2011-2012. However, for the long haul investor/owner its simply a matter of time before an expanding economy unleashes the powerful demographic trio waiting in the wings.

Filling The Vacancy
Maximizing The Rent
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