We can spend all day long talking about cap rates, interest rates, and investment sales, but at the end of the day the trends begin with the renters and everything else follows suit. So what are our renters up to?
TREND 1: RENTERS ARE MOVING IN WITH THEIR PARENTS
As of April 2020, 32 million adults were living with their parents or grandparents, the highest number on record. Over 80% of those are Gen-Zers, who account for 1.4% of the total rental market.
WHAT THAT MEANS FOR LANDLORDS:
Zillow estimates that Gen-Z renters pay an average of $726M in rent EACH MONTH. That is $726M in rent per month that could be at risk if the moves become permanent. Landlords in metros that have a large share of young renters are most at risk. Think Austin, Kansas City, Cincinnati, and Pittsburgh.
WHAT THAT MEANS FOR THE MARKET:
Multifamily will suffer with growing vacancies, but many are beginning to speculate that this may result in a surge in single family home purchases. Even after jobs return, former renters may opt to live with their parents to save for a down payment on a house. The other trend in single-family residences would be the parental generation holding off on downsizing now that they have a full house again.
TREND 2: RENTERS ARE CHOOSING SHORT-TERM LEASES
The latest National Apartment Association survey shows that as much as 35% of renters are transitioning to short-term and month-to-month leases. With many still unemployed, renters are looking for flexibility in their leases to cope with the ongoing uncertainty.
WHAT THAT MEANS FOR LANDLORDS:
Landlords are forced to oblige to maintain occupancy rates at satisfactory levels. Especially for landlords seeking refinancing or looking to sell. Not only are landlords agreeing to short-term leases and month-to-month agreements, but many are offering concessions. In major markets, a three-month concession on a one-year lease is not unusual.
WHAT THAT MEANS FOR THE MARKET:
Time will tell. Because the pandemic created a “halt” in the investment sales market, it will take a few quarters to get strong data to determine where the market concerns are. Many will be looking for answers as to how buyers are pricing in month-to-month and short-term leases vs long-term leases and how rent rolls are being substantiated during this time.
TREND 3: RENTERS ARE FLEEING CITIES
Gone. Gone. Gone. Remember those under 30-something year olds who where flocking to urban cities for their midnight yoga and 24-hour and 3AM mocha lattes? They’re gone.
WHAT THAT MEANS FOR LANDLORDS:
Landlords in large cities are feeling squeezed. Especially in new developments that need to fill their pro forma obligations, landlords are offering concessions. Many pro formas were constructed based on the growing populations of cities and urban markets and now we’re seeing a reversal in that trend.
WHAT THAT MEANS FOR THE MARKET
We see the tables turning a bit. Concessions used to be popular with landlords in suburban markets who were competing with individuals who could afford a house. Now we see more slack in the urban markets and the suburban markets tightening. Concessions make it difficult to capture strong data as rents across the board have not “actually” fallen.