Expectations overall for 2018 are strong, but Nat Kunes of AppFolio says the multifamily rent growth will continue to slow this year. Last growth, the double-digit rent growth Los Angeles had seen in prior years began to slow, and that is a trend that will continue through 2018 as we see rents return to historical numbers. We sat down with Kunes, VP of product management at AppFolio, to talk about rent growth trends this year.
GlobeSt.com: We saw slowed rent growth this year. Do you think that trend will continue through 2018, and what is causing it?
Nat Kunes: Yes, rent growth is falling to more historic averages of around two percent. In large part, this has to do with a reverse in supply and demand. There's been tremendous construction in a lot of metro areas around the country over the past few years to a point where some cities are seeing surplus supply, which then brings down overall occupancy rates. Another factor in this is that, in contrast to historic trends, people have had a tendency to live in their rental units for much longer periods of time and have reached a point where they are starting to move out of those rentals, which impacts the market vacancies and openings cycle. This will make for a more competitive and challenging landscape for property owners, investors and managers.
GlobeSt.com: How will slowed rent growth affect investment strategy?
Kunes: When rent growth slows, the investment community looks to diversify which segments they're investing in and get in on the ground level with new property trends and segments. This can counteract the impact of slow rent growth and oversaturation of property in certain markets. Investing needs to occur where it's most needed. For example, it's a smart idea for landlords and investors in the multifamily sector to take into account the swelling baby boomer population in this country. Many of those boomers are reaching an age where they are planning to downsize and are actively seeking senior retirement communities for their next move. Converting more multifamily units into senior living communities could yield better results for investors in the years to come because of this urgent segment need in the market. In residential, new builds will focus on points of differentiation like amenities and services to win in a competitive environment. We'll likely see different property segments begin to boom and investment in others slow.
GlobeSt.com: What are the broader implications of slowed rent growth?
Kunes: Slower rent growth makes it a renter's market, which gives them the control and leg up that they haven't necessarily had in the last several years to be more selective about the properties they choose to rent. That selectivity is going to make the rental industry more competitive for investors, landlords, real estate agents and property managers. Suddenly, units that offer better amenities, technological assets and services will fare much better than units that lack those types of perks. Standing out among the crowd is imperative, especially as occupancy rates fall and there are more units to compete with.
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