It’s been a good year for the multi-family market in the U.S., and some favorable trends we’ve seen in recent months will likely continue as we move further into 2016. Experts are saying that high demand will continue to keep vacancies low, and the steady climb in rents will also stay with us, although some markets will be stronger there than others. Here’s a look at the 4 big multi-family trends that have plenty of momentum to carry them through the coming year.
#1: Demand from the millennials
Perhaps the factor with the most impact on the multi-family market has been the rise of the millennial generation to take its place as the most numerous demographic in the U.S. This group, born between 1980 and 2000, now outnumbers the baby boomers, and makes up more than one-third of the country’s total population. What does that have to do with multi-family properties? Plenty.
As a group, millennials are showing a marked preference for renting over home ownership. Part of this is related to the challenging economic climate, as well as the student loan debt that many in this age group are carrying. These factors, combined with stricter mortgage loan policies, lead millennials to postpone buying a home. In fact, the rate of home ownership for Americans 35 and younger is at a historically low point: just over 36%.
This demographic is also fond of the flexibility and convenience of renting. The need to relocate may arise, and many millennials would prefer to avoid the task of selling a home in order to move. They also appreciate the perks that come with apartment living, like clubhouses, pools, gyms, and other amenities. Millennials favor urban locations fueling the trend toward living and working in urban centers, as opposed to less densely populated suburbs.
#2: New Multi-Family development
As demand holds steady, the market responds with new units, and despite the fact that construction is brisk, the inventory is still not meeting demand in most markets. The cities where increased inventory could possibly slow rent growth in 2016 include Charlotte, Albuquerque, and Los Angeles.
The most active markets for new Multi-family development have been in Phoenix, Dallas, Miami, Atlanta, and Charlotte. This will likely shift in 2016, with those places nearing optimum inventory dropping off while others, like South Florida, Seattle, and suburban Atlanta, surge ahead.
#3: Rising rents
In 2014, rents grew at a rate of 5.9% nationwide, and this year there were increases of as much as 9% in some areas of the U.S. This was especially true in secondary markets like Denver, San Francisco, and Portland. The weakest growth is expected in Washington DC. Still, the overall demand for units continues high in most markets, so the outlook is for continued rent growth going forward.
#4: Growth follows tech jobs
If the experts are right, the demand for new and existing multi-family units will be highest in the places where strong job growth is attracting new residents. This seems logical, and the type of jobs matters. Growth in well-paid jobs pulls in new residents and potential multi-family tenants.
Moving into 2016, the employment sector with the highest growth will continue to be in the technology fields. San Francisco, Seattle, and places like Denver and Austin will continue to attract a substantial number of well-paid workers in the tech sector who are likely to choose multi-family housing. Raleigh, NC’s Research Triangle is another area of strong technology job growth as is Houston, which remains one of the country’s fastest-growing cities, and is becoming a hub for healthcare and related technology.