The Light: Who Is Your Renter?

The Light: Who Is Your Renter?


The national apartment market has fared better than many in the real estate industry expected. Suburban markets are outperforming urban. The pandemic convinced many to look for larger spaces in more value-oriented locations as they embraced working from home. In the market-rate sector, many Class A suburban apartments are holding up particularly well as renters “trade up” for better deals in newer communities. Affordable apartment owners are also maintaining high occupancy as fiscal stimulus, eviction moratoriums, and a general reluctance to move unless necessary (due to COVID and job loss) keeps current tenants in place.

The apartment industry clearly has some roadblocks ahead. We expect massive amounts of new supply in markets like Dallas, Houston, Austin, Denver, and Seattle that will result in more competition and likely increased concessions. And while the US has now recovered about half of the jobs lost since February, the rate of improvement is starting to slow—25 million people in the US are receiving unemployment benefits, and a second round of stimulus has yet to be approved.

Given current market conditions, now is the time to evaluate who your renters are and who they will be in the future. We analyze these trends for our clients across the country, and the results provide insight into market-appropriate unit sizes and configurations, new amenity trends, and the rent levels necessary for successful apartment lease-up and tenant retention.

Here are some insights about the renters in the US today:

They are young, but not that young. While 26% of renter households in the US are between the ages of 25 and 34 today, the next largest segment of the market is between the ages of 35 and 44 (families), and beyond that, between the ages of 45 and 54 (empty nesters). These older renters will continue to seek more space in a suburban environment with good work-from-home amenities.

 

 

More than half of renters in the US can only afford rents less than $1,200. John Burns Real Estate Consulting’s national apartment demand model is based on income levels across the US and indicates about 60% of renter households earn less than $50,000 per year, which translates to a maximum rent of about $1,200 per month. While construction activity is increasing for luxury apartments (due largely to increasing costs associated with new building), the affordable sector continues to be hampered by the limited availability of tax credits and capital financing. The opportunity here is not just to provide affordable housing, but creative use of space in market-rate product, including more roommate-friendly units and smaller spaces to keep overall rents lower.

 

 

The apartment market offers many opportunities, even in the era of COVID and a recovering job market. Understanding renter profiles to design the appropriate product will be key in the years ahead as the US economy recovers from the recession.

Please contact  Lesley Deutch  or Ken Perlman for more local insight. Our team is always available for assistance.

 


Lesley Deutch If you have any questions, please contact Lesley Deutch, Managing Principal, at (561) 998-5814 or by email.
Ken Perlman If you have any questions, please contact Ken Perlman, Managing Principal, at (858) 281-7214 or by email.