Investors bet big time on demand for rental properties over homeownership in 2014, when sales of apartment buildings hit a record $110.1 billion, or nearly 15% higher than the previous year, according to Jones Lang LaSalle (JLL), a professional services and investment management firm.
Nearly half of those transactions were for buildings in six metros: New York, Los Angeles, Atlanta, Houston, Dallas, and Washington D.C. And the allure of owning rental properties in America’s largest cities continues into 2015, the Wall Street Journal reported.
Blackstone Group, the world’s largest private equity holder of real estate, in late January agreed to pay $1.7 billion for 36 properties with an estimated 11,000 apartment units, half of which are in Washington D.C. and Boston. The seller was Praedium Group, which JLL and Evercore Partners advised. The deal increases to 43,000 the number of apartment units managed by LivCor, Blackstone’s multifamily real estate unit, according to Crain’s Chicago Business.
The multifamily sector “has become the preferred asset class of institutional investors” since the last economic downturn, says Jubeen Vaghefi, managing director of JLL’s capital markets division. That opinion is consistent with what Vaghefi wrote in JLL’s Fall 2014 Multifamily Outlook: “The ability for multifamily starts to occur 3.5 times faster than the overall market is due to the combination of higher oversupply of single-family homes throughout the United States, a marked preference for multi-unit buildings, and residential development in core submarkets, which continue to post high occupancy rates.”
The question now is how long investors will ride this gravy train, especially if increasing supply adversely impacts rent appreciation.
The Census Bureau’s latest data for housing starts, which it released on January 21, 2015, estimates that 456,000 units were under construction in buildings with five or more units at the end of December 2014, or 26% more than in December 2013. The possibility that this market may be overheating, though, is reflected in annualized multifamily starts, which inched up by only 0.3% in December to 339,000 units. Annualized multifamily permits issued stood at 338,000 units in December, down 12.4% from December 2013
On a less ambiguous note, rents increased by 3.6% nationwide in 2014, according to Reis, the real-estate research firm. Apartment vacancy rates, at 4.2%, were near their lowest levels in 2001. And the days of excess demand that has kept rents under control “are likely over,” Ryan Severino, Reis’ senior economist, stated.
JLL contends that with vacancies stabilizing and with the market average of inventory under construction at 4.4% and growing, “the pace of multifamily tightening is softening, with projected rent growth between 2% and 3% over the next 18 months.”
Related Stories
Sponsored | Multifamily Housing | Dec 13, 2023
Mind the Gap
Incorporating temporary expansion joints on larger construction projects can help avoid serious consequences. Here's why and how.
Giants 400 | Dec 12, 2023
Top 35 Military Facility Construction Firms for 2023
Hensel Phelps, DPR Construction, Walsh Group, and Whiting-Turner top BD+C's ranking of the nation's largest military facility general contractors and construction management (CM) firms for 2023, as reported in Building Design+Construction's 2023 Giants 400 Report.
Giants 400 | Dec 12, 2023
Top 50 Military Facility Engineering Firms for 2023
Jacobs, Burns & McDonnell, WSP, and AECOM head BD+C's ranking of the nation's largest military facility engineering and engineering/architecture (EA) firms for 2023, as reported in Building Design+Construction's 2023 Giants 400 Report.
Giants 400 | Dec 12, 2023
Top 40 Military Facility Architecture Firms for 2023
Michael Baker International, HDR, Whitman, Requardt & Associates, and Stantec top BD+C's ranking of the nation's largest military facility architecture and architecture/engineering (AE) firms for 2023, as reported in Building Design+Construction's 2023 Giants 400 Report.
Codes and Standards | Dec 11, 2023
Washington state tries new approach to phase out fossil fuels in new construction
After pausing a heat pump mandate earlier this year after a federal court overturned Berkeley, Calif.’s ban on gas appliances in new buildings, Washington state enacted a new code provision that seems poised to achieve the same goal.
MFPRO+ News | Dec 11, 2023
U.S. poorly prepared to house growing number of older adults
The U.S. is ill-prepared to provide adequate housing for the growing ranks of older people, according to a report from Harvard University’s Joint Center for Housing Studies. Over the next decade, the U.S. population older than 75 will increase by 45%, growing from 17 million to nearly 25 million, with many expected to struggle financially.
MFPRO+ News | Dec 7, 2023
7 key predictions for the 2024 multifamily rental housing market
2024 will be the strongest year for new apartment construction in decades, says Apartment List's chief economist.
Codes and Standards | Dec 7, 2023
New York City aims to spur construction of more accessory dwelling units (ADUs)
To address a serious housing shortage, New York City is trying to get more homeowners to build accessory dwelling units (ADUs). The city recently unveiled a program that offers owners of single-family homes up to nearly $400,000 to construct an apartment on their property.
MFPRO+ News | Dec 5, 2023
DOE's Zero Energy Ready Home Multifamily Version 2 released
The U.S. Department of Energy has released Zero Energy Ready Home Multifamily Version 2. The latest version of the certification program increases energy efficiency and performance levels, adds electric readiness, and makes compliance pathways and the certification process more consistent with the ENERGY STAR Multifamily New Construction (ESMFNC) program.
Transit Facilities | Dec 4, 2023
6 guideposts for cities to create equitable transit-oriented developments
Austin, Texas, has developed an ETOD Policy Toolkit Study to make transit-oriented developments more equitable for current and future residents and businesses.