Construction Wave to Flood Market With Apartments

January 14, 2016

Over the next three years, developers are expected to construct nearly 1 million apartments nationwide, hoping to snag wider profits from soaring rents, which have been on the rise for the last six years. The construction goal is more than the nearly 900,000 apartments built over the previous three years, according to real estate research firm Axiometrics Inc.

Rising rents are the main hook for investors: Average rents rose 4.6 percent nationwide in 2015, the highest gain since the recession, according to Reis Inc. Rents have risen by more than 20 percent since 2010, and 2016 is expected to be another strong growth year. The national average monthly cost for an apartment now stands at nearly $1,180.

Sales of multifamily properties reached a record $138.7 billion in 2015, up 30 percent from a year prior, according to JLL, a commercial real estate services firm.

Some industry analysts are concerned that the new construction of multifamily units is concentrated in the top tier of the market and could fuel an affordability crunch even more in the rental sector.

"What concerns me is not so much the volume of construction but that there's an intense focus on building the same thing: luxury properties in urban locations," Jay Parsons, director of analytics for MPF Research, told The Wall Street Journal.

Urban centers are a main attraction for investors. In 30 major downtown centers, the number of apartments completed in 2015 was more than 54,000 — a 20-year high, according to Axiometrics.

Source: “How to Profit From Rising Rents: Build Apartments,” The Wall Street Journal (Jan. 12, 2016)