The ongoing inventory consolidation in the multifamily market is resulting in higher quality assets. This is illustrated in the steady annual increases in rents, especially in small apartment properties. Average Rent Levels Across Asset Type The current consolidation in the multifamily market, characterized by steady large building inventory expansion and a slight contraction in small building units, is helping retain better performing assets with higher rents. The above contraction in small building units comes in the backdrop of rising competition between large apartment buildings and single-family homes for Millennial rental demand. As shown below, based on the latest data from the American Community Survey (ACS), the average monthly gross rent (total housing expense) of small apartment property units reached around $1,040 in 20161. This is an increase from $1,000 in the previous year. In comparison, US average monthly gross rent in large building units increased from $1,200 in 2015 to $1,240 in 2016. At the other end of the market, the rent for single-family homes was slightly above that of large buildings. Duplex-quadruplex units were the least expensive rental option Read the full article…

Complementing the recent review of household composition and living arrangements, a closer look at householder age indicates the steady graying of small asset apartment demand.

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.