It’s hard to imagine how operating conditions could have been better for U.S. multifamily REITs last year. As the housing slump stymied new single-family development due to weak demand, multifamily properties found themselves well occupied, which helped drive solid rent growth. They didn’t just stumble into the sweet spot last year, however. Multifamily REITs began their recovery in early 2010 as rent and net operating income (NOI) began to improve. They turned positive in the second half of 2010 and then blossomed throughout 2011—momentum that we expect to continue this year as well.
In addition to performing well as a rated sector in 2011, multifamily REITs outperformed their local and national markets. This strong occupancy, along with limited new supply, helped NOI recover quickly. The multifamily REITs we rate maintained a relatively flat but strong average occupancy rate of 95.5%, but increased their average rents by 4.1% and NOI by 6.7%. Comparatively, CBRE Econometric Advisors (CBRE) reports that the national vacancy rate dipped 70 basis points to 5.3% while effective rents grew 4.9%. We believe that as the economy slowly strengthens and new supply remains in check (for now), operators can achieve similar growth in 2012.
S&P Ratings Services recently published a report (read here) highlighting our outlook for the sector. The overview of the report is shown below:
- Multifamily housing units have experienced strong occupancy and solid rental demand, leading to strong REIT apartment performance.
- Occupancy rates are likely to remain flat, but rental rate growth is likely to continue in 2012.
- As a result, we expect solid operating performance for the multifamily REIT sector this year.