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CRE Finance World Winter 2016
48
T
Led by Boomers, Multifamily
Demand to Remain Robust
he apartment sector has flourished in recent years as the
U.S. economy has rebounded from the global financial
crisis, leading occupancies, rents and property values to
soar. New supply, which bottomed during the credit crisis,
has bounced back to historical averages, prompting
concerns that oversupply is rearing its ugly head. However, based
on an analysis of economic, demographic and social trends, we
believe that those fears are unjustified. By and large, the results
of the analysis point to outsized growth in renter demand over the
next decade and possibly beyond.
Much of the increased demand has been attributed to the now-
familiar story of the Millennials, the 80-million-strong cohort that
is growing into prime renter age and increasingly moving into
urban apartments. Millennials will continue to be a key component
of multifamily demand in coming years, even as they start to age
out of the 20- to 34-year-old prime renter cohort. Less noticed,
however, is the increase in demand coming from the other end of
the age spectrum, the Baby Boomers, who are now in their 50s
and 60s. Based on demographic and social trends that are likely
to continue, today’s Boomers will be a key driver of demand for
apartments — whether traditional multifamily, single-family rentals
or age-specific senior housing — going forward.
Current Cycle
The U.S. multifamily market is in a sweet spot. Occupancies are at
or near all-time highs in most markets. Rents are rising at almost
unprecedented levels. According to Yardi Matrix, rents in the U.S.
rose a cumulative 20.2% between January 2011 and September
2015 and are not showing signs of slowing down. In fact, rents
climbed 6.8% year-over-year as of September 2015, the fastest
rate on record during the current market cycle. Elevated renter-
household formation of the heels of several years of weak supply
has been the primary force behind rent growth. Vacancy rates
are at or near all-time lows in most markets, and it will take more
than a year or two of heavy supply to change the supply-demand
dynamics.
Table 1
Average U.S. Multifamily Rent
(Source: Yardi Matrix)
Table 2
Change in Value: Apartment vs. Core Commercial
(Source: Moody’s/RCA CPPI)
Property values are also soaring, as apartments have outper-
formed all other commercial real estate segments. As of August
2015, U.S. multifamily property values were up 114% from the
January 2010 trough and had eclipsed the last peak in Decem-
ber 2007 by 33%, according to the Moody’s/RCA Commercial
Property Price Index (CPPI). For perspective, prices in other core
commercial property sectors increased 84% since the trough and
are only 8% above the most recent peak.
Paul Fiorilla
Associate Director of Research
Yardi Matrix
“Based on demographic and social trends that are
likely to continue, today’s Boomers will be a key
driver of demand for apartments — whether traditional
multifamily, single-family rentals or age-specific
senior housing — going forward.”