Apartments

The apartment sector notched another healthy quarterly performance as the resounding strength of the employment market sustains demand for rentals. Class B and C units maintained particularly tight vacancy levels, delivering solid rent growth. Markets with elevated construction levels could face pockets of heightened competition as new apartment facilities go through lease-up.

A large percentage of these newly formed households will have a high propensity to rent and be drawn to Class B and C apartments. The expanding demand for Class B and Class C properties will keep their vacancy rates tight and uphold rent growth that has outpaced Class A properties, which are contending with elevated supply additions.

Underlying demand for apartments remains strong as a robust labor market and positive demographic trends support healthy unit absorption, despite mounting supply pressure. Moving forward, modest performance gains are expected on the national level as the market continues to digest the aggressive development pipeline.

Agency lenders are making more permanent loans than ever on apartment properties.

                   Research Brief August 2017 HOUSING       Developing Trends   ■ Apartment construction appears likely to peak this year as more than 370,000 units are slated for delivery, up from 290,000 apartments in 2016....

Apartment investments will maintain a positive outlook in 2018 as the combination of steady job creation, healthy demographics and an accelerating pace of household formation sustains renter demand. The consistent ow of newly developed units, a top of mind consideration for many investors, increased competition for Class A apartment assets in cities with disproportionate deliveries. The effects of the additions tend to be concentrated, and the deliveries will wane in the coming year, supporting sound performance metrics in most markets. Class B and C workforce housing will continue to outperform as vacancies in these properties remain at historical lows, enabling owners to justify strong rent growth.