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
Building Owners | Aug 23, 2023
Charles Pankow Foundation releases free project delivery selection tool for building owners, developers, and project teams
Building owners and project teams can use the new Building Owner Assessment Tool (BOAT) to better understand how an owner's decision-making profile impacts outcomes for different project delivery methods.
Transportation & Parking Facilities | Aug 23, 2023
California parking garage features wind-activated moving mural
A massive, colorful, moving mural creatively conceals a newly opened parking garage for a global technology company in Mountain View, Calif.
Giants 400 | Aug 22, 2023
Top 115 Architecture Engineering Firms for 2023
Stantec, HDR, Page, HOK, and Arcadis North America top the rankings of the nation's largest architecture engineering (AE) firms for nonresidential building and multifamily housing work, as reported in Building Design+Construction's 2023 Giants 400 Report.
Giants 400 | Aug 22, 2023
2023 Giants 400 Report: Ranking the nation's largest architecture, engineering, and construction firms
A record 552 AEC firms submitted data for BD+C's 2023 Giants 400 Report. The final report includes 137 rankings across 25 building sectors and specialty categories.
Giants 400 | Aug 22, 2023
Top 175 Architecture Firms for 2023
Gensler, HKS, Perkins&Will, Corgan, and Perkins Eastman top the rankings of the nation's largest architecture firms for nonresidential building and multifamily housing work, as reported in Building Design+Construction's 2023 Giants 400 Report.
Higher Education | Aug 22, 2023
How boldly uniting divergent disciplines boosts students’ career viability
CannonDesign's Charles Smith and Patricia Bou argue that spaces designed for interdisciplinary learning will help fuel a strong, resilient generation of students in an ever-changing economy.
Apartments | Aug 22, 2023
Key takeaways from RCLCO's 2023 apartment renter preferences study
Gregg Logan, Managing Director of real estate consulting firm RCLCO, reveals the highlights of RCLCO's new research study, “2023 Rental Consumer Preferences Report.” Logan speaks with BD+C's Robert Cassidy.
Shopping Centers | Aug 22, 2023
The mall of the future
There are three critical aspects of mall design that, through evolution, have proven to be instrumental in the staying power of a retail destination: parking, planning, and customer experience. This are crucial to the mall of the future.
Affordable Housing | Aug 21, 2023
Essential housing: What’s in a name?
For many in our communities, rising rents and increased demand for housing means they are only one paycheck away from being unhoused. It’s time to stop thinking of affordable housing as a handout and start calling it what it is: Essential Housing.
Healthcare Facilities | Aug 21, 2023
Sutter Health’s new surgical care center finishes three months early, $3 million under budget
Sutter Health’s Samaritan Court Ambulatory Care and Surgery Center (Samaritan Court), a three-story, 69,000 sf medical office building, was recently completed three months early and $3 million under budget, according to general contractor Skanska.