Multifamily real estate investment trusts, or REITs, are becoming real estate’s “red-hot category,” and it was the most profitable sector of commercial real estate in the first quarter of 2014, according to CNBC.
Apartment REITs are rebounding after a sluggish 2013 and are now posting returns of 12.75 percent, according to the National Association of Real Estate Investment Trusts. Equity REITs in the first quarter were up slightly more than 7 percent. The continued growth in apartment demand is a big driver behind the rise in multifamily REIT stocks.
“We’ve seen a big increase in construction from the very depressed levels that we had during the depths of the recession, but in terms of overall construction, we’re barely back to what a trend pace would be with a national population the size we have in the U.S.,” says Calvin Schnure, vice president of research at the National Association of REITs.
Nearly 42,000 new apartment units were completed in the fourth quarter of 2013, the highest since 2003, according to REIS Inc. About one-third of new housing units being built are rental apartments, which is the highest level in 40 years, according to the U.S. Census.
Demand is expected to increase too as the job market improves and more younger Americans move out on their own.
“People are concerned about competition of multifamily with the improving housing market, but this is really a situation where a rising tide lifts all boats,” says Schnure. “The rising tide being the number of people who are going to be looking for a place to stay.”
Source: “Real Estate’s Red-Hot Category: Apartments,” CNBC (March 31, 2014)