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Multifamily Rent Growth Climbing
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JLL Capital Markets completed financing of the Cottonwood Terrace apartments, Colorado Springs, Colo., in 2020.
Momentum surrounding multi-housing rent growth has continued in 2022 and currently outpaces inflationary growth, reported JLL Capital Markets, Chicago.
“This trend reiterates the multi-housing sector’s defensiveness and sustained strength in fundamentals during uncertain economic periods,” the firm said in a new report.
The national average rent growth for Class A multi-housing properties has surpassed inflationary growth by 198 basis points from 2010 through the first quarter of 2022. In fact, national multi-housing rents increased 15 percent year-over-year in early 2022 as rising inflation translated to significantly higher rents.
“Multi-housing market fundamentals are exceptionally strong, and the relatively shorter nature of leases is a favorable attribute in an environment of higher inflation, which allows properties the ability to mark-to-market on an annual basis versus other asset types,” said JLL Senior Managing Director Roberto Casas, who co-heads JLL’s Capital Markets multi-housing platform.
Forecasts predict both inflation and rental growth will start moderating in the remainder of this year and continue through 2024, with both rates eventually reaching below 5 percent. That will impact investor underwriting assumptions, Casas noted.
“The convergence of several trends over the pandemic, namely home buyer affordability issues, rapidly rising wages, population migration trends and a supply and demand imbalance have resulted in a level of rent growth that is unsustainable,” said Geraldine Guichardo, JLL Head of Americas Living Research and Global Head of Research, Hotels. “Rate growth near 5 percent is more normalized.”
JLL Chief Economist Ryan Severino said April data presented that on a year-over-year basis, core and headline consumer price index decelerated, supporting the idea of an overall slowdown in inflation. “Slowing inflation should take some pressure off the sector, even though commercial real estate still boasts an imperfect inflation hedge,” Severino said.