With January already halfway gone (have you gotten used to writing 2014 on your checks yet?), we thought we’d check in with Dupre + Scott to see how their rental market forecast for the coming year was shaping up. This data is courtesy of last month’s Apartment Advisor. Let’s see what 2014 (and the next few years after that) might have in store in five key areas affecting the market.
Over 52,000 jobs were added in the Puget Sound region in 2013; Conway Pedersen predicts that another 52,000 will be added over the next year. Much of that growth (about 37,000 jobs) will be concentrated in King County, but all counties in the region could see a 2 to 3% increase in job rates. Looking further down the line, Conway Pedersen is predicting that the region will see about 194,200 jobs added over the next five years; that’s an improvement over last year’s prediction.
So just how does employment relate to demand? 2013 saw about 7.8 jobs for every occupied apartment. Based on that rate in conjunction with current demographic trends, Dupre + Scott is predicting that about five new jobs will correspond to the demand for one unit over the next few years, resulting in about 40,000 new renters within the next five years.
Gen Y and the Boomers
Let’s talk about the renters. The influx of Gen Y adults into the rental market, the effects of which have bolstered the market over the past year, should continue steadily through 2014. Most people ages 20-34 still prefer to rent their home; and currently there are about 570,000 of these young people living in the region. That’s a lot more than during the last development boom! Then there are the retiring Boomers. Over the next five years, just about 45,000 people in our region will turn 65. These waves of retirement frees up jobs for young workers, who in turn are able to afford to live on their own–and they prefer apartments. And not all of these Gen Y kids will have grown up in the region; plenty of professionals will move to the area as well. Conway Pedersen predicts that net migration will total 100,000 people over the next five years.
Development and Supply
According to Dupre + Scott’s Apartment Development Report, at least 38,000 new units will open over the next five years, with an average of 7,600 units per year. Of course, this number is dependent upon other predictions, such as job growth forecasts, and could drop if demand is lower than expected. Some investors are worried that supply will outstrip demand, with so many units planned; Dupre + Scott points out that in the end, it all comes down to where the surge in renters is coming from, and just how deep that surge is. With so many Gen Yers forming new households currently, it looks like things should go smoothly in the years ahead.
Vacancy and Rent
According to Dupre + Scott, both market and gross vacancy should hold steady in 2014. That would keep them at about 4.0% and 4.7% respectively. Vacancy should hold steady despite the increase in units because of the job growth and preference for renting we’ve seen over the past few years. Market vacancy is expected to rise, however, over the next few years; it should reach just over 6% by 2016. That would still put it below its high rate of 7% back around 2002. So how will this affect rent? Dupre + Scott tell us that rent usually starts to decline once vacancies hit about 7%, so we’ve got some time before rents start to drop. In 2014, rents should increase 5%, followed by 3% in 2015.