The Golden Age

With rents rising at record rate, rampant inflation, low interest rates and a housing shortage, investors  are snapping up  apartment buildings at an astounding rate. With few properties on the market and many trading off market it is a tough time to find a deal.   According to the Wall Street Journal, “Rental building owners have benefitted from unusually strong apartment demand during the pandemic” New household formation delayed during early lockdowns led to a surge in new leases. Not something anyone expected when the pandemic first struck.  Meanwhile, the priciest housing market in history forced many would-be buyers to keep renting.

These developments shored up building occupancy rates, which reached records of more than 97% for market-rate apartments, and enabled landlords to boost rents. Asking rents were up nearly 20% for the 12-months-period ended in November, according to a report from real-estate website Realtor.com.

Analysts expect these countless months of supercharged rent increases will start to make the difference on landlord balance sheets in 2022. Green Street, a commercial real-estate analytics provider, projects record profit growth next year for publicly traded landlords. They estimate a 13.5% increase in net operating income which is expected to outpace the office, retail, lodging and student housing sectors.

Still, some analysts question whether this accelerated rent growth is sustainable and whether tenants are willing to tolerate these rent increases. As renters face higher payments, more might choose to move back in with roommates or family, instead of renewing their leases. But most landlords have yet to see evidence of that. The general consensus is that interest rates will be rising. It is going to be an interesting year.