October 2021 Edition - What’s Up With Rents?

Projections are that the top 25 metros in the country are expected to see the greatest year-over-year multifamily rent growth between now and the end of the year.  National average asking rents increased an astounding 10.3% in August alone on a year-over-year basis, bringing the overall average rent up by $25 to $1,539/month.  Overall occupancy was strong increasing by 0.9% within the past year to 95.6% (Yardi Matrix, National Multifamily Report, August 2021).  One of the legacies of the receding coronavirus pandemic looks to be a nationwide spike in apartment rents.  Metro areas that are posting the largest year-over-year increases in rents are all, not surprisingly, Sunbelt metros in the Southeast and Southwest that are seeing the largest population growth. The good news for us here in the Southeast is that this growth is not restricted to the top markets but is being experienced in small and midsized markets, as well.  Apartment rents have reached record highs, with the widest margins seen in the small and midsized markets.

Demand is the key factor driving rents, population growth is the key factor driving demand and job opportunities including remote work are the key factors driving population growth.  The coronavirus pandemic, the cost and quality of living, local and state politics, regulations and taxes have driven many industries and individuals to make the move to the Southeast.  As a result, the southeastern states continue to experience an influx of new businesses, work opportunities and population growth.  People are moving to non-gateway markets hoping to benefit from the lower cost of living and higher quality of life.  Companies are creating jobs in these markets, attracted by the lower cost of doing business and the expanding talent pool.  

This migration has caught the attention of foreign investors who are gravitating to non-gateway markets after decades of focusing almost exclusively on gateway markets in the U.S.  These investors are now searching for investment opportunities in secondary and tertiary markets they would not have touched as recently as five years ago.  Earlier this year, AFIRE International Investor Survey, which surveys nearly 200 organizations from 24 countries, found that more than 60% of respondents expect to increase their holdings in tertiary cities in the next three to five years, signaling a significant shift in strategy towards secondary and tertiary markets.

Cross-border investment activity totaled $7.3 billion in the second quarter of 2021, up 48% from a year earlier, according to real estate data firm Real Capital Analytics (RCA). Foreign investors are looking for the next best market to place their money based on growth prospects and the Southeast and Southwest U.S. are it.  “The fundamentals are just very strong in these markets, and investors are chasing growth,” says Riz Cassum, Executive Managing Director of Capital Markets, Americas for JLL.

Population growth means increasing need for housing and our apartment market is the beneficiary of this surge.  Occupancy rates are high and the demand for additional apartments continues to grow.  With this demand has come stable and increasing rents.  This “Perfect Storm” scenario will likely cause rents to keep rising while the market remains hot.

“Just-In-Case You Missed It” is a monthly letter prepared for multifamily owners and prospective owners.  It is a compilation of multiple articles from multiple sources or a reprint of an article from a specific source (source credit given).  Its purpose is to present both facts and opinions that may influence our multifamily business in the Southeastern U.S. If you have any questions and/or would like to discuss any of the comments above, my conclusions or your multifamily business, please contact me at your convenience.  I can be a valuable resource to you without adding expense to your budget.  I look forward to speaking with you and having an opportunity to meet with you.  I am always at your disposal to assist you with your multifamily business.  If you would like to review previous editions of my monthly “Just-In-Case You Missed It” letter they are posted on my website, www.rickbakermultifamily.com. 

Respectfully

Rick

G.F. Rick Baker, CCIM 

Multifamily Specialist/Investment Advisor 

www.RickBakerMultifamily.com 

2504 Tinderbox Ln.

Greensboro, NC 27455

Cell: 336.549.6083 

Email: rickbakermultifamily@gmail.com

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