Demographics driving rents higher, vacancies lower

by Joe Zekas on 7/25/12

One of the single biggest drivers of the health of the apartment market is the number of 20 to 34 year olds in the population. As that cohort grows, the apartment market typically becomes healthier.

Marcus & Millichap recently published its Third Quarter National Apartment Outlook (pdf, registration required), with some positive news (for landlords) on the demographic front:

The U.S. apartment market shows no signs of weakening, as demand for apartments transcends age cohorts and income groups. The U.S. is expected to add 2.4 million residents in the prime renter age cohort of 20 to 34 year olds over the next five years at annual growth rates not attained since the early 1980s. The momentum of increasing numbers of echo boomers entering the work force and forming their own rental households, and rising immigration levels will continue to significantly surpass new construction of rental units.

Forecast completions of 85,000 units will total about half of what is necessary to accommodate expected demand, pushing the national vacancy rate down another 30 basis points to 4.4 percent by year end, the lowest rate in 11 years. Tight supply conditions will narrow the gap between monthly asking and effective rents, with annualized effective rent growth expected to approach 5.0 percent and set a new peak at $1,027.

You’ll find much more data in the full report.

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