Small Building Renters Are Growing in a Handful of Regional Markets Amidst General Decline
Recent renter growth trends across American metro markets suggest a skew towards large apartment buildings and single-family units. This has resulted in dampened renter growth in small building inventory across all metro segments.
Renter Population Shares and Shifts
While apartment renting remains a predominantly urban affair across both the downtown and suburban areas of large U.S. metros, renting activity is expanding into smaller cities and new property types.
As shown below, nearly 70% of the nation’s small building renters lived in the 50 largest metro areas, with 28% just in the five largest by rental inventory– New York, Los Angeles, Chicago, Dallas and Houston.¹
Urban orientation is even more pronounced for large apartment buildings. Nearly 80% of all renters in this asset class lived in the Top 50 metro areas, and close to 40% lived in the Top 5. In stark contrast, nearly 50% of all single-family home renters lived outside the largest 50 metro areas.
Mirroring inventory growth, as presented in our recent blog, renter population has declined in small apartment buildings across all metro market segments between 2015 and 2016.
In contrast, renter population in large buildings soared across the board, at an annual rate of 9% in the Next 15 metros², and 4.5% in the Next 30 markets³.
Single-family renters also grew over this period, but at a more modest rate, keeping pace with overall U.S. population growth.
Bright Spots in the Small Apartment Building Market
Standing out from this overall decline, small building renters grew in 17 of the Top 50 metro areas. These areas mostly included smaller secondary and regional metros, except for large cities such as Dallas, Boston, Philadelphia, Seattle and San Diego.
While these shifts may be partially explained by renter preference, the overhanging supply glut in large buildings — combined with the emergence of single-family renting — is exerting downward pressure on small property renter growth.
At the same time, small property investors and managers need to stand ready with higher quality offerings in anticipation of tightening inventory supply. They should also be looking to diversify their interests across metro market segments.
¹ Based on the recently released 2016 American Community Survey.
² The Next 15 metros are defined as the 6th through the 20th largest metros for small apartment building inventory.
³ Th Next 30 markets are defined as the 21st through 50th largest metros< for small apartment building inventory./span>