Medium-quality apartments still a sweet spot, but location matters

Medium-quality apartments still a sweet spot, but location matters

Key takeaways

  • Higher-quality (defined as a 4&5-star CoStar rating) apartment construction has been booming and contributing to higher vacancy rates with downward pressure on rents.

  • The medium-quality (defined as a 3-star CoStar rating) apartment market segment has had scant inflow of new construction; modest vacancy rate increases and solid rent growth.

  • Results vary by market. Metro-area data suggest some relocation of tenants from medium-quality units to over-supplied higher-quality units. Those metros have had weaker higher-quality rent growth making the relocations attractive.

  • Current vacancy rates in higher-quality market segments hint to the degree of difficulty associated with absorbing this year’s strong inflow of new construction across metro areas. Absorption will take time, but conditions are not historically unprecedented.

  • Higher-quality supply is challenging but affordable medium-quality apartments are still in short supply with rent growth prospects positive but still varied across metro areas.

Important disclosures

AegonAM Medium-quality Apartments Sweet Spot Location Matters.pdf

(184KB) PDF

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