Apartment REITs: Rents Rising, Again
Apartment REITs delivered another solid year in 2018. Fundamentals improved throughout the year as strong rental demand more than offset peaking supply growth.
'Renter Nation' is alive and well. Rising mortgage rates and tax reform have led to softening demand at the margins for homeownership, offset by strengthening demand for rentals.
For apartment renters, the modest relief from rising rents was short-lived. Leasing metrics improved throughout 2018, particularly new leases, which were up nearly 150 bps from last year.
Turnover rates remain near record lows as renter satisfaction remains very high. Low turnover has kept expense growth in-check despite pressure from rising property taxes.
Supply growth appears to have peaked in mid-2018 but will remain elevated in 2019 before pulling back in 2020. Rent growth is likely to rise above the rate of inflation well into the next decade.