As we enter the fourth quarter of 2017, we sit at an interesting point in the multifamily cycle. Apartment development and rents have surged every year over the past decade, while other real estate sectors have experienced ebbs and flows. But with this prolonged multifamily boom, many now feel that new-construction starts will slow, especially as sites become harder to source and access to capital is a bit more constricted.
Despite the current slowdown in construction, rental demand is unlikely to wane. Looking closely at macrolevel dynamics and demographics, some telling trends are emerging. Here are four that point to rental demand remaining strong.
Urban Populations Are Growing
Huge population growth in city centers is still occurring and may be attributed, at least in part, to the growing number of people less willing to put up with a lengthy daily job commute. Transportation options are typically wider-ranging inside cities than in the suburbs (and beyond), and people want access to them.
This transportation effect is also changing the face of corporate recruitment. Counter to the recent trend of companies moving out of urban centers, many are actually now moving back into cities as they chase the quality workers choosing to live there. This trend has been evidenced in Chicago, with 60 companies moving into the city’s downtown in the past five years, including Kraft, Heinz, Motorola, and McDonald’s. Millennials are a key target for these corporations, as they are one of the major demographics opting to reduce their work commute times.
More and More Empty-Nesters Are Choosing to Rent
With all the talk of millennials driving the rental market, baby boomers and empty-nesters are often overlooked. Yet, the percentage of empty-nesters opting to rent when downsizing is higher than ever.
Contrary to the vision of more-traditional senior communities that are designed for and populated solely by those over 55 years of age, many new developments, including rentals, are being designed for all ages. It’s been found that seniors actually enjoy the energy of younger generations and that they live healthier lifestyles—even longer lives—when they live among them.
In addition to living among multiple generations, boomers and empty-nesters, like millennials, are drawn to metropolitan amenities and attractions. They’re gravitating, in particular, to rental communities in submarkets that offer robust culinary, shopping, transportation, and cultural features. They’re seeking a vibrant urban lifestyle where walkability and dynamic community amenities intersect.
The Median Age in Urban Communities Has Increased
The age of renters has shifted, with the median age increasing from 26 to 32 over the past decade, a development that coincides with shifts in lifestyles and relationships. One cause of this change is the many people pushing off traditional marriages until they are older. Whereas people a generation ago (boomers) often married in their 20s, the Gen X and millennial cohorts are often waiting until their 30s to marry. This decision affects their housing choices and keeps many in rentals longer.
Additionally, more and more renters today have college degrees. These educated renters typically make more money than their counterparts who didn’t complete college. With more residents renting longer and being college educated, median rents have also risen.
The Number of Young Adults Still Living With Their Parents Is Higher Than Ever
The number of young adults just out of high school and college and still residing at home is the highest it’s ever been. Previously, the figure sat at around 1.2 million annually across the U.S. However, in a huge jump, the number now exceeds 2 million. It’s logical to assume a large percentage of this group will eventually move into the rental market. This fact alone will keep rental demand strong.
Populations inside metropolitan cores will continue to grow. These markets are vibrant, culturally rich, and often walkable and provide accessible transportation—all factors fostering modern healthy living. This lifestyle is a draw for young and old alike, and urban rental demand will continue to thrive for this very reason.
