Job Growth, Supply Top Concerns in Apartment Sector, Analyst Says

Dave Bragg, managing director with Green Street Advisors, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Bragg covers the multifamily sector for Green Street. He discussed the effect of the housing recovery on apartment REITs.

“The housing recovery is starting to have an impact on the multifamily sector,” he said.

Bragg pointed to a key indicator that illustrates the impact. Exit surveys shows that the percentage of apartment residents who are moving out to by homes is on the rise, according to Bragg. However, Bragg also noted that the current share of apartment residents leaving to buy homes still trails the historical average.

“This former tailwind has now become a slight headwind,” Bragg said.
Bragg was asked about the threats to the health of residential REITs in the current market climate.

“The recovery in the housing market is a threat, and it receives a lot of attention, but I’d place the top two threats as job growth and multifamily supply,” he said. “Job growth and apartment rent growth have a very strong correlation over time. Second—and what is generating a lot of attention today—is multifamily supply, especially in formerly considered high-barrier markets. That is a great risk that we’ll be able to better quantify over the course of 2013. Third, I’d place the housing recovery after those two.”

Bragg also offered his analysis on trends in the single-family rental market.

“The interest in the single-family market most recently has stemmed from the influx of institutional investors who are entering a variety of markets around the country, including the most distressed markets, and buying single-family homes and renting them out,” he said. “The single-family rental market itself has long existed. In fact, it has long accounted for more than 30 percent of rental units. Therefore, while the actual marketplace is not new, it’s actually becoming institutionalized from both an ownership and a management perspective. This institutionalization of the single-family rental market has caused apartment investors and operators to question the impact. By our accounts, it is actually quite modest.”

Bragg said the percentage of apartment residents moving out to rent single-family homes ranges from approximately 1 percent to 5 percent.