The annual PWC Emerging Trends in Real Estate report for 2018 reveals numerous key insights. This quote from the article, “based on 43% of the total rent demand being satisfied with traditional 5+ multifamily units, we will need an average of 328,000 units per year from now through 2030 and cumulatively 4.6 million units of 5+ unit housing,” stresses the need for multifamily housing.
So while there are currently a handful of major markets suffering from oversupply, especially of newly built class A multifamily, the overall economy is going to be supply constrained over the next 10 to 15 years. The key is to find the right markets by switching focus from supply constrained markets to demand unconstrained markets. Avoiding upscale class A developments will help mitigate the risk against rents softening. By renting out to the middle of the market, you are ensuring strong demand in a growing or contracting market.
Reasons for continued rental demand over the next decade are delineated in the PWC report as well. “A major share of the 77 million-strong millennial generation squares up in a big, sustainable way with renting as a household preference, because it is a more affordable way to form a household, it allows for greater flexibility, and, frequently, it provides greater on-demand access to community connectivity. What’s more, renting by choice is trending among other age groups, including the 55-plus households who want to downsize to a more maintenance-free, connected lifestyle, with easy access to healthcare, culture, entertainment, and food.”
The last quote brings up an interesting, strategic opportunity. By catering rental offerings to the 55+ demographic, an investor can be sure of strong future demand as an additional 40 million baby boomers are heading into retirement over the next decade. Many of these retirees will be looking to rent as stated in the aforementioned quote and will want to be near good healthcare. I will expand on this topic further in my next blog!