Investors are finally buying apartment properties in big numbers in smaller cities and towns. “There’s been a dramatic increase in the number of offers for properties in secondary and tertiary markets,” says John Sebree, director of Marcus & Millichap's National Multi Housing Group. “It’s been moving in this direction for some time—now it’s moving at a faster pace.”
Big institutions bought about half as many single-family houses in the first quarter of 2015 compared to the year before, according to the latest numbers from data firm RealtyTrac Inc., even though the investors overall are more active than ever in buying single-family houses.
In many recovered housing markets, Americans are now paying more for condominiums than they did during the housing boom, according to the S&P/Case Shiller Home Price Indices. But developers are barely building new condominiums to meet that demand.
Downtown areas can be difficult places to build apartments simply because there is limited land for new construction projects. But in recent years, developers have been highly motivated to overcome the barriers to build downtown.
The percentage of vacant apartments stayed incredibly low in the first quarter, as cold weather delayed a confrontation between growing supply and growing demand. As a result, says Victor Canalog, chief economist and senior vice president for Reis Inc., “The most die-hard multifamily optimists will have their beliefs tested in the next six months.”
Modular construction, in which buildings are created in a factory, transported on the back of a truck to the site and assembled like giant Lego blocks, has become an increasingly common construction method for apartment developers.
Students are opting for the amenities and services offered at new student housing properties, encouraging developers to add more and more amenities and services to their plans. The latest data on pre-leasing for the fall 2015 school year shows that the newest properties are leasing quickly—and at high rents.
With so many new apartments being built across the country, the cities that have had the most new construction over the past five years show how the next wave of new apartments now under construction might be absorbed.