Multifamily rents continue to rise faster than inflation
- Posted by admin
Real estate has long had a reputation for being an effective hedge against inflation. According to recent data and analysis from JLL, even in the current environment of record inflation in the U.S., the sector is no exception to this rule.
"The national average rent increase for multifamily outpaced inflation by 198 basis points (1.98%) between 2010 and the first quarter of 2022″, JLL explained. "In fact, over the first quarter of 2022, multifamily apartment rents increased 15% on a rolling year basis, a direct result of inflation."
Multifamily units do have an ability to align their rents with market prices through annual rental leases. According to Yardi Matrix, multifamily rents peaked in April at $1,659 per month. This momentum has allowed properties to achieve exceptional valuation, resulting in yield compression.
Walker & Dunlop 's latest report states that $290 billion in transactions have been recorded in the sector in 2021, nearly double that of 2020. "The rebound that has taken place in multifamily is due, in part, to the return of many tenants who left the inner cities at the peak of the pandemic, but rental vacancy levels have also been reduced due to the construction industry struggling to deliver new units."
However, JLL suggests watching for disparities between the different classes of multifamily assets, which are more or less limited in terms of rent increase potential. Indeed, low-income tenants (Class C and D multifamily assets) will have a much harder time financially keeping up with the rental market.
"The convergence of several trends reinforced by the pandemic such as difficult homeownership, rapid wage increases, demographic trends and a significant imbalance between supply and demand have resulted in a level of rental growth that is unsustainable over the long term," explained Geraldine Guichardo, JLL's director of research, in the report.
JLL predicts that both inflation and rental growth will begin to abate this year and through 2024 with interest rates also falling back below 5¨%.
Source: JLL, Yardi Matrix, Walker & Dunlop
0 Comments