Rental apartments are a rare point of growth in the commercial real estate industry, according to Investor’s Business Daily. Developers throughout the industry are investing in large and ambitious projects, with the largest growth is in Dallas; Houston; Los Angeles; Orange Country; California; and Northern Virginia. The new apartments vary as much as their locations—some large, some small, some high-end, and some economy.
Given the lag time embedded in commercial real estate, this increase in building could mean good news for years to come. Investor’s Business Daily quoted Mark Obrinsky, chief economist with the National Multi Housing Council, as saying, “At this point, there is some noticeable pickup in new construction, but a lot more pre-construction activity is going on.” This is a welcome change from the past two years of building only 100,000 new units a year (compared to 300,000 units a year between 1998 and 2007.)
Why the sudden upswing in the real estate market? It’s a classic case of economic supply and demand. In the lagging economy, fewer people buy and maintain their own homes, so more renters enter the market. Furthermore, as the economy starts to recover, Gen Y is starting to find jobs and rent property for themselves. With both groups scrambling for apartments, vacancy rates are falling fast. Manhattan rental vacancy hovers in the low single-digits, and Los Angeles boasts a 96.4% occupancy rate. A great demand and a small supply mean that property owners can ask more money for their rentals.
In fact, rents have continually and steadily increased throughout the past two years . Though the national average increase was 4.2% in the past year, some regions are much higher—such as San Francisco and San Jose, where have risen over 13%. MPF Research, one of our sister companies and a consulting firm for the apartment sector, estimates that rents will climb another 4-5% in the next year. This doesn’t mean bad news for renters, though. With all sorts of units in short supply, builders and developers are sure to expand the market for affordable (and new!) rentals, too!
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