Key Highlights:
- The prospects for investing in coastal gateway cities and Sun Belt and Mountain cities are diverging.
- Limited supply, a growing economy, shifting demographics, immigration, the high cost of homeownership, operating dynamics, cap rates, and international investment flows may help spur renter demand in large coastal cities.
- Some Sunbelt and Mountain cities have become victims, perhaps temporarily, of their own success. Oversupply in these cities weakened market fundamentals as demographic growth has not kept pace with construction and expenses have risen.
- The higher cost of homeownership across the country help to make multifamily investing attractive for the foreseeable future.
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Additional Insights:
In the first half of the year, the national apartment market remained bifurcated as positive demand trends began to take hold in some cities while a supply overhang persisted in others.
For example, operating fundamentals were generally weakest in the Sun Belt and Mountain Region. Many cities in these two areas had the greatest number of new units come online this year, outpacing the number of households that relocated to these regions.
In contrast, many coastal cities outside of the Sun Belt, and in particular gateway cities, had little construction activity during the past few years. With less pressure on supply, rent growth and occupancy levels recovered in these cities sooner than in their Sun Belt and Mountain counterparts. This marked divergence in market performance could provide opportunities for nimble investors as asset values in urban coastal regions may not fully reflect the potential income streams and quicker recovery timeline.
Regional Shifts Bring New Opportunities, Lument’s Summer 2024 National Market Report, was developed in partnership with Rosen Consulting Group.
