Did you make it to WMFHA’s Washington Apartment Outlook conference last Friday? Mike Dupre of Dupre + Scott fame gave a 30-minute talk on the multifamily trends that are currently hitting the market. These will be delved into with plenty of background and forecasts for the future in the October issue of Apartment Advisor (which we’ll happily recap) when it’s released; but for now, here are some highlights from his presentation: five major apartment market trends that we’re seeing this year.
1. Vacancies are low, while rents and cap rates are climbing.
First we’ve got vacancies–these bave bounced around recently between a high 4% and a low 5%. Right now, market vacancy (excluding new units) is at 4.8%, while gross vacancy, including units in initial lease-up, is 5.5%. Combine that with rents, which have risen 4% in the past 12 months (largely since March), and we’re looking at a pretty rosy picture–especially when we factor in Cap rates, which are at 5.1% in Seattle and may fall even more, as indicated by currently low interest rates. With all of these rates in better shape than we’ve seen in years, it’s no wonder that #2 is true.
2. Multifamily sales–and construction starts–are up as well.
Did you know that this has been the sixth best year ever for our region in multifamily (five or more unit) sales, even with the year far from over? It’s also been the fifth highest volume year. Meanwhile, prices have climbed “twice as quickly” as rents, averaging $132,000/unit this year, up from their 2010 bottom at just $110,000/unit. Then we’ve got new developments, which have shot up drastically from last year: while just 1,500 units were opened in 2011, this year will see 6,000 units opened–that’s the biggest number we’ve seen in twenty years.
3. Apartments are trending smaller after hitting a millennial peak.
When we look at the past 120 years, it’s clear that America just can’t make up its mind on apartment size. There was the rapid increase in apartment sizes in the late 1930s, with the advent of the Garden Court–an outlier–and a rapid decrease in the 1950s with the invention of the motel-style apartment–another outlier. Generally, apartments averaged between 500 and 600 square feet until 1960, when they began to rise rapidly with the birth of the Boomers. After a peak in 1999, the average is now falling; this year, it’s 750 square feet, with plenty of buzz about the micro-housing of the future.
4. Gen Y-ers have come of age–and they’d rather rent.
Is Britney Spears the quintessential Gen Y-er? Gen Y began, we’re told, in January of 1982; that means the first Gen Y-ers, like Britney, turned 20 in 2002. Generation Y is now a generation of housing consumers, and they’ve been conditioned to rent by the housing crisis that hit just before they might have been ready to buy for the first time. In the next four years, over 80,000 young adults will be added to the region–and as long as they can find jobs, they’ll probably live in rental housing.
5. As Boomers retire, the workforce will fill increasingly with (younger) renters.
Finally, we have the Boomers and what Dupre + Scott call “the Geezer effect.” Over the past twenty years, an average of 18,000 people have turned 65 each year in our region. But that’s all about to change–during the next five years, the average will jump to 34,000/year, and by 2020, it will be even higher. What do retiring boomers mean for the rental market? Boomers tend to own their houses; but as they age out of the workforce, younger workers will take their place–and those younger workers will probably want to rent.