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Top Dog: Multifamily Remains Construction's Hottest Properties

With all the construction that the real estate industry has endured in the last decade, it looks like one sector has risen above all others to claim the top spot in development coming out of the recession: multifamily.

As the demand for new apartment units surges and rents for those units are projected to rise for a fifth straight year, experts speculate that even with a ton of multifamily construction breaking ground it’s unlikely that we’ll see any real relief anytime soon.

So, even with the 6% rise in apartment rents that we saw take place over the last decade and the accompanying 13% drop the average renter saw in their income, we’re still seeing more first-time and returning tenants looking to rent.

These renters are not only seeing multifamily as a financially viable solution to their living needs, but also as a lifestyle choice that puts them in a community that affords them proximity to both work and play. A growing trend that we can expect to do nothing but thrive in the upcoming years.

That’s also why we’ve seen multifamily construction spending continue to increase throughout the first half of 2014.

The idea of multifamily becoming the hottest sector in the real estate industry really boils down to the shifting job market. The lack of access to available credit and the struggles in the employment sector have taken ownership off the table for a majority of Americans. Also, as job markets begin to return, we’re seeing more urbanization as these new employment opportunities are in the larger cities, forcing those in rural areas to move closer to their would-be employers else they would be faced with commuting costs they cannot afford.

As people are making the logical choice to rent apartments closer to available work, we are seeing multifamily rental rates jump.

According to the latest reports, the average asking rents were up 8% in the second quarter of 2014, compared to the first quarter, up 3.4% year-over-year, and up for the 18th consecutive month in a row. This trend isn’t localized either. As a matter of fact, this same report points out that rental rates saw increases in all of the 79 metropolitan areas tracked, with the highest growth taking place on the west coast.

Some of the cities seeing the fastest rental rates include: Oakland, California at 4.6%, Charleston, S.C. At 5.9%, Seattle, Washington at 6.2%, San Jose, California at 6.2%, and at number one, San Francisco, California with a 6.7% increase in rents.

For those looking to expand their reach into the multifamily construction sector, the expert construction industry economists over at the Associated General Contractors (AGC) of America predict that multifamily housing will remain a top prospect well into 2015 citing new Census Bureau data that has seen multifamily construction spending increase 4.4% from March to April 2014 and a 31% spike in spending year-over-year as evidence of the trend.

Are there any strong trends you’re seeing take place in your local multifamily market? Do you have a strong opinion on the current state of the multifamily marketplace? If so, please feel free to spark a conversation in the comment section below.

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