A closer examination of household composition, including single renters and families, as well as living arrangements reveals distinct patterns across rental asset classes.

While rental housing costs remain high, the accelerated improvements in the U.S. economy have resulted in incomes that are rising slightly faster than rents.

As primary markets get increasingly expensive for housing, young adults at the beginning of their careers are moving into regional hubs. This movement is providing new growth opportunities for small asset investments.

One way to look at the drivers for Millennial demand across US metros is to consider their concentration. Their concentration is shown here as an index of the Millennial share in small properties (5 to 49 units) to their share in the wider metro population.

With a lower share of inventory located in flood-prone areas, small buildings are more conservative in their risk profile and offer value for investment across the apartment market. Resiliency and Risk Landscape for Small Buildings Recent reports point to a counter-intuitive trend of how home prices and apartment rents are growing faster in flood prone areas. This trend is explained by the premium associated with scenic locations such as beach fronts and waterways, since they are also the most-prone to flooding. This varies across metro areas and asset class. As shown below, based on data obtained from the American Housing Survey (AHS) 2015, around 8% of all small apartment building units in the United States were located within areas assessed with a high risk of flooding. In large buildings the share was slightly larger at 10%. The risk assessment for apartment buildings and their units varies greatly across metro areas. The data indicates that small buildings displayed a tighter spread around the national average compared to large buildings. An indication of the preference for scenic, albeit riskier, locations characterize the Read the full article…

For their relatively lower rent levels, small apartment properties are surprisingly well-rated by their occupants, both in terms of unit quality and the neighborhoods in which they are located.

While a majority of apartment renters continue to live in small properties, renter growth in this property class is facing headwinds from large asset oversupply and rental incentives.

While apartment renting remains a predominantly urban affair across both the downtown and suburban areas of large US metros, renting activity is expanding into smaller cities and new property types.

When comparing rental demand by age segments, Baby Boomers stand out as the fastest growing group across the rental market.

The growing popularity of single-family rentals as a housing option for Millennials is skewing the multifamily inventory toward amenity-rich larger buildings. At the same time, the trend is helping consolidate smaller apartment assets.