The real estate market continues to face post-recession challenges, both commercially and residentially. While most sectors in real estate are struggling to return to prior levels, the multifamily/apartment market continues to show solid performance during 2012. But will the growth and demand continue for apartments? Here are three trends to consider:
- Demand continues to increase. Overall, apartment demand has increased in recent months. The housing market affected demand; many homeowners experienced foreclosure, were delinquent on mortgage payments, or found they owed more on their mortgage than their home was worth. In addition, regulations from lenders to qualify for a mortgage are stricter. The major decline in home values led many would-be first time home buyers to continue to rent rather than buy because the recent recession showed that home value increases are not necessarily guaranteed. With demand increasing for apartments, investors are paying more attention to this hot sector.
- Lender appetite remains strong. Lenders have remained cautious with real estate projects, particularly residential development. However, the multifamily sector continues to see the most financing activity. Because of the high demand for rental units, average occupancy rates have climbed upwards of 95 percent in most markets. In addition, rent rates have modestly increased during the past year. As a result, investors/owners generate solid cash flow to support a financing arrangement for their properties. This has caused lenders’ appetite for financing multifamily projects to remain strong.
- Construction and development activity is spiking. Because the demand for apartment rentals has increased, the construction market is experiencing some signs of recovery with respect to apartment projects. Overall, many projects are planned or have commenced in the last few months to address the high demand from renters and investors. With development ramping up in the short-term, the supply may eventually slow the rental growth in the future.
The apartment rental market is expected to remain strong through the remainder of 2012, but will likely be affected by changes in the housing and job markets. If housing prices continue to stay at recessed levels, then demand for rentals should stay strong. In addition, slower job growth will keep interest in rentals high. Lastly, with many new construction projects in the multifamily sector started, investors should be cautious that the supply of units does not exceed the current demand.
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