US Small Apartment Properties Show Steady Increase in Average Monthly Rents
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 at below $1,000 in 2016.
Small Apartment Properties Show Highest Gains
Increasing rents in the context of contracting supply, indicates that asset quality adjustment has been most pronounced in small apartment properties.
As shown below, the average rents of small property units grew by 3.5% between 2015 and 2016, the highest across all rental assets, compared to 3.1% in large buildings.
This was a reversal from the previous year, where the year-over-year annual growth in large building rents was higher at 4.2% compared to 3.8% for small properties.
In comparison, the 2015-16 annual rent growth, while slowing down for the single-family and duplex-quadruplex rental market segments, was also lower compared to the multifamily asset class.
For multifamily investors and property operators, keeping track of inventory adjustments and rent changes is a critical first step in interpreting broader market trends, which additionally requires examining specific local contexts.
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.