A combination of demographic and economic factors are boosting the market for rental properties in the US. 2015 was an excellent year for buy-to-let investors with low vacancy rates and increasing rental rates and 2016 has so far followed a similar pattern. This scenario has led a major market analyst to predict “a strong rental pool over the coming years”.
In The Multifamily Outlook Summer 2016, Marcus & Millichap report that strong employment creation has led to equally strong household formation, particularly among the so-called millennials. This generation, aged between 20 and 34, is the largest in the US and numbers around 66 million people.
Their propensity to rent makes them an ideal market for rental properties in the US, a market sector that is currently experiencing a considerable boom. Low vacancy levels – despite an uptick in new construction this year – and rising monthly rental rates make buy-to-let an attractive proposition for investors.
Employment growth stimulates rentals
Although Q2 GDP growth figures for the US fell below analyst expectations, employment creation is exceeding all forecasts. This year is the sixth in the row of sustained job growth and the new jobs created in the first five months of the year brought total employment to 5.5 million jobs higher than its pre-recession peak.
Marcus & Millichap report that job creation is taking place across the board, but is particularly noteworthy in the higher salary sectors. Jobs requiring degrees such as those in professional and business services went up by 129,000 between January and May, providing “a large pool of prospective renters for Class A rentals”.
In general, job prospects are very good in the US – 2.1 million jobs will be created this year – and unemployment currently sits at levels around or below 5 per cent. Particularly significant is job creation in the millennial group where unemployment has plummeted from 12 per cent six years ago to its current 6 per cent. According to Marcus and Millichap, a buoyant job market encourages the creation of new households.
Prime market for rental properties in the US
Millennials combine two vital factors for the buy-to-let sector. This age group prefers job mobility and renting a property lends itself to easy relocation. They also tend not to own homes – over the last decade, the number of millennials owning their home has dropped from 43 to just 35 per cent.
Around two-thirds of this population group rent their home, a fact that “will support a robust renter pool over the coming years”. As a result, millennials are the prime market for rental properties in the US and a major factor to take into consideration when looking at buy-to-let investment.
The 2016 market for rental properties in the US
Nearly 60,000 new properties entered the US market in Q1 this year, but despite this influx of supply, rental vacancy rates remained low throughout the country. The level of 4.2 per cent registered in the first three months of the year is described by Marcus & Millichap as “still-tight”.
The report cites the striking example of two metro areas where despite an increase in the number of rental properties, vacancy levels failed to rise. In both Los Angeles and Miami-Dade in Florida, supply dwindled even though Miami had more than 2,100 new rentals.
In line with the sustained and increased demand rents continued their steady upward trend. Monthly rates increased by 5.9 per cent in the year to Q1, ahead of the 5.5 per cent growth registered in 2015 as a whole. The report concludes that “tight vacancy will enable many property owners to continue to push rents at a healthy pace in the coming months”.
“The market for rental properties in the US is probably one of the most consolidated anywhere,” comments Dies Poppeliers, Managing Director of BRIC Group. “This latest report confirms its bright future and the market’s potential to continue to yield solid returns to investors.”
BRIC Group, an investment company specialising in global real estate opportunities, offers US real estate investments including turnkey properties in Florida and Houston, and land plots in Florida. BRIC Group is also developing The Coral resort, in Northeast Brazil, a luxury beachfront resort with land and villa investment opportunities. BRIC Group has been creating wealth for its clients since 1996 and has offices in Brazil, Dubai (consulting office), Hungary, Spain and the US.
(Source: Marcus & Millichap)