Multifamily REITs Find Resilience in Job Growth and Demographic Shifts
Second-quarter earnings reports released by multifamily REITs reveal a resilient segment characterized by generally solid results and a sense of cautious optimism in an environment that includes interest rate uncertainty, shifting renter demographics and evolving tech adoptions.
An analysis by RealPage found most multifamily REITs expect near-term pricing to remain somewhat muted in higher supply regions, and continued economic uncertainty is likely to remain a more widespread headwind. The report analyzed the results of Equity Residential (EQR), AvalonBay Communities (AVB), Campden Property Trust (CPT), Mid-America Apartment Communities (MAA) and Essex Property Trust (ESS).
Among the companies studied, occupancy rates held firm during the quarter, ranging from 95% to 97%. Year-over-year same-store NOI growth ranged from -2.5% to 3%, and blended lease tradeout rates saw modest increases, especially in lower-supply coastal and Midwest metros, said the report.
As they position themselves for the next cycle, most REITs are taking a cautious approach to capital deployment, said RealPage. EQR, for example, acquired nearly 2,100 apartment units in suburban Atlanta as it expands its portfolio in high-growth Sun Belt markets outside of its suburban coastal footprint. Meanwhile, UDR focused less on expansion and more on portfolio optimization.
More broadly, REITs appeared to be doubling down on geographic concentration, favoring high-growth, business-friendly markets, such as Atlanta, Tampa, Houston and Washington, D.C. In regulatory-heavy regions like the Bay Area and the Pacific Northwest, many REITs are fine-tuning their exposure, said the report.
Demographic shifts are strongly influencing the multifamily market, from pricing strategy to amenity packages, said RealPage. Sun Belt cities are appealing because they continue to attract renters with favorable affordability and job growth. Younger Americans are reshaping demand in secondary markets, and remote work flexibility is sustaining demand in suburban and exurban areas, said the report.
The report pointed to Houston and Tampa as outperforming markets benefiting from job growth and affordability. San Francisco and Seattle, on the other hand, face continued pressure from new supply and rent control legislation.
Looking ahead, insurance costs and climate resilience will be key concerns for multifamily REITs, especially in coastal areas. Financial discipline and operational agility will separate the winners from the losers, said RealPage.
“For property managers, it’s about embracing technology and adapting to tenant expectations,” said the report. “Still, the multifamily REIT space remains an attractive niche asset class relative to many other investment opportunities, particularly as new supply is projected to wind down significantly over the next two to three years and pricing normalizes closer to historical norms.”
Source: GlobeSt/ALM