Small Multifamily Rent Growth Leads All Other Property Types

Small Multifamily Remains the Affordable Option

The versatility of small multifamily, which offers lower rents, proximity to job centers and larger unit sizes, creates a strong value proposition for renters and property owners. The asset class forms the backbone of U.S. workforce housing stock. The labor market’s continued strength bodes well for small multifamily rent growth, property-level income and low vacancy rates.

According to the most recent housing data from the U.S. Census Bureau American Community Survey, the U.S. rental market continued to see rents rising steadily across all property types. Small multifamily saw the most robust growth while maintaining its status as the least expensive asset class.

U.S. average gross rents for small multifamily units stood at $1,117 by year-end 2018. Large multifamily commanded premiums of nearly 20%, averaging $1,324 per unit.

Single-family rentals (SFR) averaged rent levels of $1,320, identical to large apartment units. Meanwhile, rents for townhomes (two- to four-unit properties) were more similar to those for small multifamily.

Rents Continue to Rise Across the Board

Overall, the latest Census data shows rents have kept increasing across all rental asset classes year over year in 2018. Small multifamily rent growth outperformed that of larger apartment competitors by a healthy margin.

Small multifamily rents increased an average of 4.1% in 2018, 60 basis points (bps) higher than the prior year. In comparison, large multifamily rents grew by 3.5% in 2018, just 30 bps higher than in 2017.

The change in rent growth from a year earlier was most observable for single-family rentals (SFRs), which saw annual rent growth rise by 150 bps to notch a 3.9% year-over-year gain through 2018.

Unit affordability combined with healthy property-level income provide good market conditions for the small multifamily asset class. While observers are calling attention to current late-cycle conditions, the labor market remains resilient and has continued to improve in spite of an increase in macro uncertainty. These fundamentals should help maintain the rental market’s healthy performance over the medium-term.

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Note: 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.