Small Multifamily Rent Growth Catches Up to Larger Assets

The most recent update from the Census Bureau indicates that the small multifamily rental market experienced a steeper year-over-year increase in rents compared to both larger properties and historical trends.

An Update on Monthly Asking Rents Levels

Rent growth depends on more that just market location. Asset class also plays a role. New apartment supply in the post-crisis multifamily cycle has primarily consisted of larger, highly amenitized properties. While the emerging glut in the larger building inventory has placed some downward pressure on rent growth, larger buildings still command higher average rents.

As shown above, by year end 2015 asking rents in the small asset market (5 to 49 units) had reached about $900 across all unit sizes. Compare that to $1,130 per unit for large assets (50+ units) and $960 for the overall multifamily market.

Growth in Small Asset Monthly Rents

As a result of the current supply-side dynamics, the rate of rent growth in the small and large asset markets effectively converged over 2014-15.

The year-end 2015 asking monthly rent levels represented a year-over-year growth of 4.2% for small properties, catching up with the annual growth of 4.3% for the large asset market, as shown below.

At the same time, while the small property rent growth in 2014-15 was 1.5% higher compared to the historical average four-year trend (2010 to 2014), the annual rent growth in large buildings increased 0.9% for these comparison periods.

This shows that asking rents in the small asset market are currently growing at a faster rate compared to the post-crisis historical trend, perhaps providing an attractive opportunity for investors to include within a diversified real estate portfolio.