State of Apartment Demand and a Look to 2017

2017

The past few years might be long remembered as the heyday for apartment demand, a time when the industry emerged from the Great Recession of 2008 and 2009 and rebounded with a vengeance.

Although that unsustainable pace is showing signs of tapering, it doesn’t mean that apartment demand is falling off the ledge. In fact, this year might be another stellar year, just maybe not as over the top as the past several.

Indications are that new construction will begin to slow as supply finally begins to meet demand, but the rate of construction will continue to be above average. The same is true with apartment demand in general, and rent growth might continue to occur, particularly in larger markets.

Hints of a slowing market were revealed among many sources, most notably in the National Multifamily Housing Council’s most recent quarterly survey of apartment conditions. The survey, released on October 20, 2016, showed slowing across all four indexes (market tightness, sales volume, equity financing and debt financing).

While this certainly isn’t rosy news, it doesn’t predict doom and gloom either. What it means is that apartment marketers will have an even greater responsibility in 2017, as competition for renter attention will heat up significantly. When apartment communities aren’t highly occupied due to high demand, marketing efforts become more valuable to reach a shrinking pool of prospective renters.

Some might have been spoiled by the strength of market conditions, considering that the 2016 vacancy rate of 7.4 percent was the lowest since 1983 and eons better than the high-water mark of 12.3 percent in 2009. Seven-plus years of economic recovery and recent job growth have been a boon to the industry. We’ve always advocated to continue marketing even when occupancy is high and your communities are full. That ensures you’re one step ahead of the game in the event of an inevitable slowdown. The benefits of that recommendation could come into play in 2017.

Other factors that also could affect the market in 2017 include:

  • The impact of a Trump presidency. Tax reform, loosened regulations and major changes to the Affordable Care Act (which could benefit businesses) are among the hot topics that could alter the multifamily landscape to some degree, according to Axiometrics. While Trump’s election could signify a return to an emphasis on supply-side economics popularized during the Reagan era, stricter immigration laws could reduce the pool of potential renters.
  • Wage growth is finally outpacing rent growth. For example, wage growth increased 3.9 percent year-over-year in October compared with rent growth of 2.6 percent. That means a higher percentage of people will be able to afford apartment living.
  • Multifamily investment fundamentals continue to grow. While slowing has been noticeable across all four indexes, multifamily investment fundamentals are still on the upswing. The increase of 0.4 percent in the third quarter was modest, but still a strong sign. Washington. D.C. experienced the greatest surge at 7.3 percent.

While some will enter 2017 with a cautious approach, it’s no time to panic. It’s time to get proactive. Apartment demand is still there. It just might take increased marketing effort to secure your share of it.