Apartment REITs: Don't Look Now, But Rents Are Surging Again



  • Renters enjoyed a brief reprieve from rising rents over the past two years as landlords competed to fill a record number of newly completed high-end apartment units.
  • A “perfect storm” of factors - led by rising wages and continued robust job growth - has rejuvenated the rental markets, even as high-end multifamily supply growth remains historically elevated.
  • Landlords are now back in control as rent growth has surged to the strongest rate since 2016, powered by the best year for household formation growth since 1985.
  • Softness in the single family markets has been more than offset by strength in the apartment markets. Record-low turnover rates has helped keep expense growth under control for apartment REITs.
  • Outside of the high-end apartment category, new home construction has significantly lagged housing demand, leading to a persistent rise in housing costs that will likely linger through the next decade.

REIT Rankings: Apartments

In our REIT Rankings series, we introduce and update readers to each of the commercial and residential real estate sectors. We rank REITs within the sectors based on both common and unique valuation metrics, presenting investors with numerous options that fit their own investing style and risk/return objectives. We update these rankings every quarter with new developments for existing readers.

apartment REITs

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Apartment REIT Sector Overview

Apartment REITs comprise roughly 15% of the REIT Index (IYR and VNQ). Within the Hoya Capital Apartment REIT Index, we track the nine largest apartment REITs, which account for roughly $120 billion in market value and more than 500,000 total housing units: Apartment Investment and Management Company (AIV) ("Aimco"), AvalonBay Communities (AVB), Camden Property Trust (CPT), Equity Residential (EQR), Essex Property Trust (ESS), Mid-America Apartment Communities (MAA), UDR, Inc. (UDR), Preferred Apartment Communities (APTS), and Independence Realty Trust (IRT).

Apartments - also called "multifamily rentals" - are one of the major commercial real estate sectors. The $3-4 trillion US apartment market remains highly fragmented, with REITs owning roughly 500,000 of the estimated 21 million multifamily rental units across the US, which is less than 3% of all apartment units. Even more than other real estate sectors, apartment markets tend to exhibit commodity-like characteristics over time as rental fundamentals respond in a rather efficient and predictable way to supply and demand conditions, highlighted by the minimal differentials in operating performance exhibited by the seven major REITs, which we analyze below. Over time, markets seeing well-above-trend rental growth experience a subsequent period of elevated new development, and vice-versa. On average, REITs tend to own more high-quality assets in major "job hub" cities, though several REITs focus more on suburban and

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The views and opinions in all published commentary are as of the date of publication and are subject to change without notice. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Any market data quoted represents past performance, which is no guarantee of future results. There is no guarantee that any historical trend illustrated herein will be repeated in the future, and there is no way to predict precisely when such a trend will begin. There is no guarantee that any outlook made in this commentary will be realized.

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Disclosure: I am/we are long VNQ, EQR, MAA, UDR, CPT, AVB, ESS, AIV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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