Multifamily space benefits from rising affordability gap

The sector continues to look bright, he said, noting REIT investors are keeping a close eye on the job market in assessing the sector: “We’ve been in an extremely vibrant environment,” Otero said. “The important numbers are jobs. We look at the monthly job data and look where unemployment is nationally and regionally to get a good feel.”

The winning streak continued through the second quarter of this year, Otero added. “We tend to put the apartment market into two buckets – coastal and the Sun Belt,” he said. “For REIT purposes, we have one or two companies that are a little more dedicated to the Midwest, but, realistically, it’s primarily the Sunbelt players and the coastal players. On a blended basis, rent growth in the second quarter was just about in line with the first at about 15% to 16% — very, very strong rent growth. When we think of rent growth, we think of two factors. There are new leases – renting to that new college graduate, if you will, that new tenant – and then you have the renewal market. Those two combined have been in the mid to high teens for the last three quarters, right up to the second quarter – very, very strong numbers.”

Otero acknowledged the earnings season as a key barometer in judging the economic climate, as public companies reveal their net profits each quarter. “These companies tend to report earnings in the first week of August through the second week of August – primarily the first week of August, a couple in late July. But July was still very strong for these companies in terms of, again, these new lease numbers. The renewal numbers were very strong.”

Will this month fare as well? “August does start to slow down from a seasonal perspective, and we expect to see a little bit of that. But not as much as they were anticipating. Flash forward to the third and fourth quarters. Will we be off that 15% rent growth? I think we will, but we would still be in the 10% to 12% range, which is still very, very strong rent growth supported by jobs and occupancy level – which nationally is in the 96% range, which is really, really high occupancy.”