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
Smart Buildings | Apr 7, 2023
Carnegie Mellon University's research on advanced building sensors provokes heated controversy
A research project to test next-generation building sensors at Carnegie Mellon University provoked intense debate over the privacy implications of widespread deployment of the devices in a new 90,000-sf building. The light-switch-size devices, capable of measuring 12 types of data including motion and sound, were mounted in more than 300 locations throughout the building.
Affordable Housing | Apr 7, 2023
Florida’s affordable housing law expected to fuel multifamily residential projects
Florida Gov. Ron DeSantis recently signed into law affordable housing legislation that includes $711 million for housing programs and tax breaks for developers. The new law will supersede local governments’ zoning, density, and height requirements.
Energy Efficiency | Apr 7, 2023
Department of Energy makes $1 billion available for states, local governments to upgrade building codes
The U.S. Department of Energy is offering funding to help state and local governments upgrade their building codes to boost energy efficiency. The funding will support improved building codes that reduce carbon emissions and improve energy efficiency, according to DOE.
Steel Buildings | Apr 6, 2023
2023 AISC Forge Prize winner envisions the gas station of the future
Forge Prize winner LVL (Level) Studio envisions a place where motorists can relax, work, play, shop, or perhaps even get healthcare while their vehicles charge.
Architects | Apr 6, 2023
New tool from Perkins&Will will make public health data more accessible to designers and architects
Called PRECEDE, the dashboard is an open-source tool developed by Perkins&Will that draws on federal data to identify and assess community health priorities within the U.S. by location. The firm was recently awarded a $30,000 ASID Foundation Grant to enhance the tool.
Architects | Apr 6, 2023
Design for belonging: An introduction to inclusive design
The foundation of modern, formalized inclusive design can be traced back to the Americans with Disabilities Act (ADA) in 1990. The movement has developed beyond the simple rules outlined by ADA regulations resulting in features like mothers’ rooms, prayer rooms, and inclusive restrooms.
Market Data | Apr 6, 2023
JLL’s 2023 Construction Outlook foresees growth tempered by cost increases
The easing of supply chain snags for some product categories, and the dispensing with global COVID measures, have returned the North American construction sector to a sense of normal. However, that return is proving to be complicated, with the construction industry remaining exceptionally busy at a time when labor and materials cost inflation continues to put pricing pressure on projects, leading to caution in anticipation of a possible downturn. That’s the prognosis of JLL’s just-released 2023 U.S. and Canada Construction Outlook.
Cladding and Facade Systems | Apr 5, 2023
Façade innovation: University of Stuttgart tests a ‘saturated building skin’ for lessening heat islands
HydroSKIN is a façade made with textiles that stores rainwater and uses it later to cool hot building exteriors. The façade innovation consists of an external, multilayered 3D textile that acts as a water collector and evaporator.
Market Data | Apr 4, 2023
Nonresidential construction spending up 0.4% in February 2023
National nonresidential construction spending increased 0.4% in February, according to an Associated Builders and Contractors analysis of data published by the U.S. Census Bureau. On a seasonally adjusted annualized basis, nonresidential spending totaled $982.2 billion for the month, up 16.8% from the previous year.
Sustainability | Apr 4, 2023
ASHRAE releases Building Performance Standards Guide
Building Performance Standards (BPS): A Technical Resource Guide was created to provide a technical basis for policymakers, building owners, practitioners and other stakeholders interested in developing and implementing a BPS policy. The publication is the first in a series of seven guidebooks by ASHRAE on building decarbonization.