With historically low vacancy rates, as well as developers chasing unprecedented high ROIs for rental property investments, the demand for new rental property construction shows little indication of abating in the near future.
Currently, the opportunities for architects specializing in rental property design are abundant as the demand for rental property from both tenants and developers remain at historic highs. As household formation resumes among Millennials, who are finally feeling secure enough in their employment to move from their parents’ homes, the demand for rental units is booming. In addition, 20-somethings find themselves competing for rental property s with empty nest Baby Boomers and former homeowners recovering financially from losing their homes during the Great Recession.
Investors Chasing High ROI Driving Rental Property Building Boom
The flood of prospective tenants is only one factor fueling the rental property construction boom – the extraordinarily high effective rent growth rates (5.7 percent nationally) and ultra-low vacancy rates ranging between four to five percent, make this type of commercial real estate highly attractive to investors. In fact, the Urban Land Institute reports that the number of sales of existing and newly constructed rental property developments now exceeds the pre- Great Recession peak. In 2014, the 351,000 rental property housing starts represent a 14 percent year over year increase, which is double the 6.6 percent growth rates for single-family starts.
Boom or Bubble?
As the American economic recovery matures, many question whether the demand for new rental property construction and redevelopment of older rental property communities is sustainable. A review of midyear market conditions published by Building Design + Construction, indicates that rental property starts are at an 18 year high and rental property construction continues to drive the recovery in the housing sector. With the rate of new permits for rental property units up 79 percent in June 2015 and the Builder Confidence Index reaching 60, experts forecast that market conditions will remain robust in the rental property sector. With the rush of retirees continuing to enter the rental market, the need for new rental property housing construction is likely to continue into 2017 and beyond.
Essential Rental Housing Insights
Luxury Rentals Rule the Market
Affordable Rental Properties Next on the List for Developers
Has your firm switched from single family to rental property housing design? How has the change affected your business?