Small Multifamily Assets Showing Higher Productivity in Secondary Metro Areas
Apartment properties show rent increases across all metro segments; while growing steadily in the largest metros, secondary markets are now experiencing higher rent growth in the small asset space.
Higher Rent Gains in Secondary Metro Markets
As highlighted in our recent blogs, showcasing the latest American Community Survey (ACS) data, the U.S. multifamily market is experiencing inventory consolidation with a steady expansion in large building units accompanied by a slight contraction in the small asset inventory.
This consolidation process is the most pronounced in secondary metro areas, where small property units declined by 1.6% over 2015-16. This can be compared to a whopping 9.3% annual increase in the large asset inventory.
At the same time, while the small asset space experienced inventory decline, average rents have soared during this period. The increase indicates higher productivity and higher quality portfolio of property assets for investment.
As shown below, the latest ACS release shows a 5% year-over-year increase in average gross rents (all housing expenses) for small property units in the secondary metros (Next 15 Metros)1. In comparison, large property rents increased by only 2.3% over this period.
Annual rent growth in small properties was 3.7% in the Top 5 Metros. This number was higher compared to large properties in the Top 5 metro areas at 3.3%, while trailing in the smallest metros (Next 30 Metros).
In comparison, single-family rentals experienced relatively slower rent increases across metro markets compared to the overall multifamily segment.
Average Rent Snapshot across Metro Segments
An overview of average rent levels by year-end 2016 shows that small property rents were typically lower compared to both large asset multifamily and single-family rental units, currently competing for older Millennials starting families.
The data also shows that average rent levels in the Top 5 and the Next 15 metro areas are converging across asset types, suggesting a larger set of investment opportunities.
For multifamily investors and property operators, keeping track of both the spread of rental demand and the productivity of asset class by location will be advantageous in identifying new growth opportunities.
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.