Despite concerns over the health of the U.S. economy and what that means for the broader commercial real estate industry, the apartment sector still maintains more tailwinds than headwinds as we look forward. Slowing single family home construction in combination with home prices that remain stubbornly elevated, are forcing many would be homebuyers to remain renters for the time being.
Apartment fundamentals also remain strong and rent growth—though moderating from highs hit earlier this year—is still achieving outsized gains compared to historical averages. According to a recently published report by RealPage, market-rate renters are actually not as financially squeezed with their rent-to-income ratios as previous assumptions held, spending 23.2% of their income on average, towards rent.
With these factors and the ability of apartment operators to re-price their rents on a more consistent basis to track inflation, it’s no wonder rent growth is estimated to outperform historical performance over the next handful of years.