Talk to most people in the industry about the state of the economy and business growth, and the number-one lament is about the lack of job growth. Of course, employment is the driver behind space absorption across all sectors. Jobs fill office space. Without jobs, people can’t spend money in retail stores. Or pay rent.
But in terms of employment, the multifamily sector seems to be in a good position at this stage on the cycle. Unemployment may still be an issue in most markets across the US, but for young adults—the prime renter cohort—more jobs are becoming available.
That was the recurring observation made by most folks I spoke with at last week’s RealShare Apartments 2010 Conference in Los Angeles. When asked about job growth, many property owners and operators shared that even in weak markets, their renters are finding jobs. Anecdotal and factual evidence shared in both conversations and panel sessions during the conference show that occupancies for traditional apartments in most metros are rising, thereby allowing for rent growth as well.
That helps to explain why we’re seeing absorption in the face of slow job growth. According to M/PF Research, the number of occupied multifamily units in the 64 major metros tracked by the company rose in the first quarter by 215,000. That figure is almost twice what was absorbed in all of 2009, and helped to bring the midyear vacancy rate to 6.6%. from 8.2% at year-end 2009.
Employment has been on a gradual uptick for several months, and although the unemployment rate for those aged 20 to 34—the prime renter cohort—has been higher than older generations, job growth for that group has been at a slightly brisker pace. A look at BLS data illustrates this point.
At the end of 2009, the unemployment rates for the 35- to 44-year-old group was 7.9%, those 45- to 54-years-old had a 7.2%, and for 55- to 64-year-olds, the rate was 6.6%. Look at the numbers from September 2010, however, and the unemployment rates for those cohorts actually rose or flatlined: 8.1% for the 35 to 44 group, 7.1% to the 45 to 54 group and 7% for the 55 to 64 group.
If you look at younger generations, however, the trend is clearly reversed. Americans between the ages of 20 and 24 saw their unemployment rate go from 14.7% at year-end 2009 to 14.6% in September, but the next group—those aged 25 to 34—saw unemployment decrease by 40 basis points during that period, to 9.5% last month. That’s the greatest change any age group saw during the first nine months of the year.
In addition to job growth, I’ve been hearing that more young adults are moving out of their parents’ homes into apartments of their own, often with the help of their parents. Whether this is an indication of economic confidence or that parents have become fed up with their mooching children, though, remains to be seen.
Apartment market performance is also a matter of location. Of course, the high-barrier-to-entry coastal cities tend to outperform others, but in this environment, it’s probable that young adults seeking employment will go to where the jobs are. So if Kiplinger is right, the top 10 US cities that may see an influx of young adults over the next decade are scattered across the country: Austin, TX; Charlotte, NC; Chicago; Houston; Kansas City, MO; Lansing, MI; New York City; Portland, OR; Salt Lake City; and Washington, DC. Selection, according to Kiplinger, was based on available jobs in growth sectors (unemployment rates ranged from 6% to 10.9%), as well as below-average costs of living and median monthly rents, including utilities around or below the national average of $819 (in most cases)—among other factors.
So for you owners and operators out there, do these stats and observations hold true? Are you seeing occupancies, or at least traffic, rise? Have you been able to raise rents on renewals and turnovers, even in “tough” markets? Or are we being too optimistic?
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