New research from the National Association of Real Estate Investment Trusts (NAREIT) shows a dearth of new apartment construction, coupled with a record level of pent-up demand for apartment space, has created an approximately 2.5-million-unit supply and demand imbalance in apartment inventory – a situation that the association says will likely support strong financial performance by apartment real estate investment trusts (REITs) this year and beyond.
‘The distortion in supply and demand fundamentals for the U.S. multifamily housing market that has been caused by the financial crisis and Great Recession will support further declines in vacancy rates and increases in rents for apartment REITs well into the future, even though new construction now is increasing to meet the growing demand,’ says NAREIT Vice President of Research and Industry Information Calvin Schnure. ‘It will take several years to bring enough new apartment stock to the market to meet the pent-up demand, and that gap will create a continuing tailwind for apartment REIT operating fundamentals.’
NAREIT's analysis shows that construction of multifamily units plunged to a nearly 20-year low during the recession, creating a supply shortfall. According to the analysis, between 2008 and 2010, construction of multifamily units fell as much as 70% from its trend growth rate over the past decade.
‘Squeezing off the construction pipeline for four years, on its own, has produced a shortfall of more than 500,000 apartment units relative to the number that would be needed just to satisfy the demand produced by normal population growth over that period,’ Schnure says. ‘However, there is nothing normal about the demand scenario for apartment units that will come into play as the economy continues to recover, accelerating the job growth we are beginning to see now.’