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CNBC: Demand for Apartment Rentals Surges Unexpectedly as Home Sales Slump

According to CNBC:

john pawlowski senior analyst green street advisors apartment and single-family rental outlook

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Surging demand and strong occupancy in the nation's apartment market is "surprising" experts who say the continued strength is "unexpected."

Just a year ago, as dozens of cranes swarmed over major U.S. cities, there was concern that the rental apartment market was overheated and overbuilt.

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"People underestimate how far away from homeownership a lot of renters across the country, even in luxury apartment buildings, are," said John Pawlowski, residential sector head at Green Street Advisors. "The demand has been better than expected. It's been a stickier tenant base and pricing power at that tenant base, again in the face of elevated supply, has simply surprised us."

The third quarter of this year marks the fourth consecutive quarter of positive operating "surprises" for apartments, according to a recent report from Green Street, which noted that the asset values of these apartment properties remain on firmer footing than most core property types. Apartment earnings were also better than expected.

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"The REITs have been one of the best-performing sectors in 2018," said Pawlowski. "2017 was a tough year for REITs too, so a bit of the 2018 outperformance was because they looked cheaper heading into the year from substantial underperformance preceding 2018."

Green Street has a sector overweight call on the residential REITs, including apartments, single-family rental REITs and manufactured housing

"We have a high level of conviction that those property types will outpace returns and will outperform most nonresidential sectors heading into next year," said Pawlowski.

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