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March 01, 2012 at 11:46 AM
High demand for apartments in the wake of the housing market crash and a dearth in the construction of new units has led the apartment REIT sector to outperform significantly in recent years. The National Association of Real Estate Investment Trusts reports apartment REIT price returns are up 225% through February 2012 since the REIT market’s trough in March 2009.
The surge in apartment REIT share prices has caused some investors to question whether apartment REIT stocks are fully valued. NAREIT claims there is an approximately 2.5-million unit supply-demand imbalance in apartment inventory–an imbalance likely to support strong financial performance by apartment REITs in 2012 and well beyond.
“The greatest imbalance I see in any sector currently between supply and demand is in multifamily tenant buildings,” says Marty Cohen, co-chairman and co-CEO of REIT money manager Cohen & Steers. “If a person goes bankrupt or experiences a foreclosure, they can’t get a mortgage. We had 2.5 million people added to this category last year. Renting is the only proposition they have. Couple that with recent college graduates who see renting rather than owning as a better proposition in the current economy, and the reasons the sector is doing so well become clear.”
NAREIT’s analysis shows that construction of multifamily units plunged to a nearly 20-year low during the recession, creating a supply shortfall. According to the analysis, between 2008 and 2010, construction of multifamily units fell as much as 70 percent from its trend growth rate over the past decade.
