Small Multifamily Leads All Asset Classes in Average Rent Growth
Small asset multifamily has displayed sound price fundamentals, with year-end 2017 average rent growth maintaining the upward trend of the previous year, according to the latest Census data.
Small Multifamily Offers a More Affordable Rental Option
Average unit rents vary across asset classes due to a collection of factors, including proximity to the urban core, building-level amenities, and unit size. For example, sizeable rent premiums result from the downtown location of highly amenitized large apartment buildings, while bigger unit sizes and open space support pricing for suburban single-family rentals.
Small multifamily assets offer a unique blend of urban-core proximity and relatively larger apartment unit sizes, while still maintaining affordable market rents, forming the backbone of workforce housing.
As shown below, historical rent levels diverged into two distinct bands, with single-family rentals and large asset multifamily coming in at least 20% higher compared to the rest of the rental housing market, according to the U.S. Census Bureau’s latest American Community Survey.¹
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Underscoring their value proposition, small apartment building average rents stood at $1,073 in 2017, compared to $1,279 for large buildings and $1,271 for single-family rentals.
Interestingly, while starting at average rent levels 4% below single-family units in 2014, large multifamily buildings ended up as market leaders by year-end 2017.
Consistent and Impressive Rent Growth for Small Multifamily
Strong labor demand from the ongoing U.S. economic expansion has kept average unit rent levels consistently up across all rental asset classes over this maturing growth cycle.
As shown below, small apartment buildings led the market in rent growth for the two-year period ending in 2017, notching year-over-year gains of 3.5% over both 2015 to 2016 and 2016 to 2017.
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In comparison, average unit rents in large apartment buildings grew by 3.2% over 2016 to 2017, slightly up from the previous year. Meanwhile, single-family rental rents increased by only 2.2% over 2016 to 2017.
For multifamily stakeholders, the above data indicates the enduring strength of the entirety of the apartment market, and small buildings in particular. Looking ahead, as noted in our recent article, the gradual absorption of localized large asset oversupply in some of the biggest metro markets should begin to nudge rental prices further upward, as delivered supply realigns with demand.
1 All data is sourced from the American Community Survey (ACS), unless otherwise stated. ACS statistics are sample-based estimates of the compositional profile of the total population in the given year of data collection, and include a margin of error.