It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, Charles Dickens, A Tale of Two Cities

The vast majority of adults rent their first housing rather then buy. Rentals in the next ten years will be propelled by growing numbers of echo-boomers, those aged 18-34, essentially the children of the baby-boom generation as well as immigrants coming to the U.S. This age group will grow on a national basis from 65.8 million in 1995 to 72.9 million by 2020, an increase of seven million renters, according to J. Thomas Black. (For additional information, see Black's study, Opportunity and Challenge: Multifamily Housing In Mixed Use Activity Centers.)

This growing tenant population will be looking for apartments located in urban and suburban areas, particularly in the largest 100 cities and their surrounding counties.

To compete, owners will increasingly need to offer units wired with high-tech hookups. Closely-knit communities with recreation facilities such as pools, volleyball, fitness centers and big screen TV rooms (similar to college dorm communities) will have the best chance of attracting these tenants. Average incomes within the echo-boomer group will mean that most demand will be centered on mid-rent apartment properties rather than high-rent units.

In effect, we have an idea of where apartment growth is headed in the next decade.

The challenge for apartment owners will be to achieve successful rent levels, despite the reality that new construction costs have soared. In our community, for example, we have new traffic impact fees, park fees and development fees -- not to say anything about increased land prices and basic construction costs. Units that cost $50,000 to build several years ago now cost close to $70,000 -- and more -- per unit.

Now is the time for apartment investors to search local markets. Is the local population growing? What segment of the rental housing market faces the greatest demand?

For instance, 1998 was a gangbuster year in our area for apartment sales, so prices rose. In 1999 because investors had their money in the stock market, demand fell. Now, with the stock market in retreat, real estate in metropolitan statistical areas (cities and their adjoining suburbs) are once-again interesting to investors, especially properties that can be renovated and updated to appeal to the echo-boomers.

Apartment investments are management and maintenance intensive. Done right, maintenance and management cost money and take time -- and they also lower vacancy levels, increase revenues, and raise apartment values.

Given expected changes in the rental market, job growth, and demographic shifts, investors in many areas (but not all -- there are no guarantees) will likely find lower vacancy rates during the next 10 years as well as a strong market for apartment investments.

If apartment ownership seems interesting, if you think the giddy days on Wall Street are largely over, then it may be time to consider investments in your area. Speak with local brokers, economic development offices, and current investors for ideas and information. Who knows, perhaps apartment ownership is in your future.

For more articles by Clifford Hockley, please press here.

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Copyright 2001 Clifford Hockley. Posted by Realty Times with permission.

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Published: March 21, 2001

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