New apartment deliveries will likely slow next year with development activity hitting a peak this year. Most of the new construction activity has been at the high end of the market, and is unaffordable for many renters. While new construction will slow, there continues to be value-add opportunities to renovate vintage product to meet the incredible demand for rentals, especially as homeownership declines.

“On the apartment supply side, an estimated 80% of new supply is in the class-A sector, which is unaffordable for many,” Mitch Siegler, senior managing director of San Diego-based Pathfinder Partners, tells GlobeSt.com. “There is considerable demand for more affordable options, which are being fulfilled by owners of older '70s to '90s apartments upgrading those properties. That remains the essence of Pathfinder's investment strategy. Considerable supply of new apartments has been delivered during the past few years; we believe that 2018 will be the peak year for new supply for the foreseeable future.”

While development may slow, demand certainly will not. For-sale home prices have kept many buyers out of the market, which will help to fuel apartment demand well into the future. “We believe macro trends—including declining homeownership and rising housing costs—will continue to increase demand for apartments,” says Siegler. “Increases in mortgage interest rates, expected in 2019, will continue to exacerbate declining homeownership rates. Strong demand for apartments will be particularly pronounced in major markets in the Western U.S., like Seattle, Portland, Denver and several California cities, which have been magnets for millennials.”