🔒Apartment market likely to demand higher rents as housing shortage, moves to CT persist

Q&A talks with Victor W. Nolletti, executive managing director of investments for Institutional Property Advisors, a division of Marcus & Millichap, about the outlook for the multifamily market.

Connecticut’s multifamily market is coming off another hot year. What’s driving demand for apartments?

Nolletti: Rising costs and restrictive regulations in New York state, specifically the five boroughs, ignited a capital flight to commutable markets in and around New York City.

Renewed institutional interest, coupled with private client high-net-worth investors fleeing New York, created a very competitive sales environment in New England.

The expanded buyer pool, along with resident flight to lower-density living, created the strongest growth in the state with 2021 housing prices hitting their highest levels in 15 years.

Multifamily housing has benefited dramatically from new market conditions.

Overall occupancies and new tenant/renewal rent growth are the strongest they’ve been in many years. While hard to specifically quantify market to market, our polling suggests overall rent increases from 3% to 12%, in many cases more, depending on asset type, class and location.

These performance levels are being driven by a lack of new apartments in the more suburban markets, coupled with an expanding renter pool relocating to lower-density housing or downsizing to multifamily housing.

The national housing sector is experiencing an undersupply of for sale and for rent housing estimated to be 5 million units, and it will take years to satisfy demand and reach an equilibrium.

How are construction costs impacting the potential for new inventory?

Nolletti: I think the effect could be significant. Both labor and material costs are rising dramatically.

Based on what I am seeing, my gut is the developer pool will shrink as only the very efficient will be able to continue to develop in suburban markets outside of core Fairfield and New Haven counties.

What tenants are driving demand for apartment rentals?

Nolletti: It is very broad-based, young first-time renters, renters by choice, empty nesters downsizing and an influx of folks moving to Connecticut and embracing the tremendous quality of life we enjoy here.

Do you see the multifamily market cooling off anytime soon?

Nolletti: I believe the growth we have seen in the last 18 months will stabilize, but I expect the Connecticut multifamily industry to remain strong and growing.

The overall fundamentals are very supportive. It is a stable, long-term yield alternative and a hedge against inflation.

How important are amenities in new apartment developments?

Nolletti: Lifestyle amenities will remain important. Your fitness center, golf simulator, pool, lounge, pet-wash stations, outdoor theater, package lockers, etc., remain a draw for tenants.

We are also seeing common workspace for the work-from-home trend as well as wellness centers, enhanced filtration systems and sustainable options centered around more green living.