Multifamily firms that continue flocking to coastal markets to court Gen Y and empty-nest retiree renters could be missing out on better action in the nation's heartland. According to “Lifestyle Renting on the Rise,” a report released June 29 by CB Richard Ellis' Torto Wheaton Research division, national rental growths since 2004 have been driven primarily by a rising propensity to rent across the Midwest and among middle-aged households.
Examining U.S. Census Bureau data, Torto Wheaton finds that between 2004 and 2006, the Midwest accounted for 446,000 new renter households, compared to just 120,000 new renters in the West and East combined. Middle-aged households (aged 45 to 64) contributed the most to expanding rental demand as well, adding 863,000 rental households—or 72 percent of the total—during the two-year period.
Study author and Torto Wheaton senior economist Gleb Nechayev says a downturn in the national housing market has a lot to do with the results, and Torto Wheaton economists speculate that baby boomers who recall previous housing downturns pegged 2004 to 2006 as a peak moment to cash out of housing investments and lock in capital gains before retirement. “The results are not totally surprising since the trend has emerged at the end of the biggest housing boom in recent history,” Nechayev says. “Households just don't expect home prices in the Midwest to be a great investment judging by historical home price trends, especially over the last boom cycle.”
That's not to say things are horrible in the big barrier markets. “We have had great year-over-year rent growth in the Los Angeles markets and I don't see it stopping,” says Rory Ferlauto, senior vice president for the multifamily practice group at Colliers International in Encino, Calif. “Every apartment owner I talk to is happily surprised that the growth is exceeding their pro forma. It's waitlists at a lot of places.”
Source: Torto Wheaton Research