3 months ago
3 months ago
Secondary markets are home to the fastest inventory growth for the small multifamily (5 to 49 units) asset sector. In this deeper dive into the trend, we provide more details on where exactly these growth markets are.
As covered previously, the small asset market added about 300,000 units — an annual rate of 1.9% — over the 2014-15 period, according the latest data released by US Census Bureau. Below we’ll examine trends across the following market tiers:
As shown below, the Top 5 MSAs accounted for only an 18% share of this addition, which was lower than their overall share of 25% of the US small asset inventory in 2015.
In contrast, while the next 15 metros (ranks 6-20) constitute 23% of the overall inventory, these areas received a significantly higher share (about 36%) of the growth.
Small asset growth rates across the Top 20 US metro areas by size varied widely, with metros in the US Southeast (Orlando, Atlanta and Miami) growing the fastest.
New hotspots include Seattle, which has recently emerged as a Gateway market riding on the back of its technology boom. Other up-and-comers include Riverside, CA — which is recovering from the housing crisis and recession — and Minneapolis, which is the fastest growing metro in the US Midwest.
Among the traditional Gateway markets (the ‘Big 6’), Los Angeles and Chicago grew faster than the US average growth rate, while New York and DC showed significantly slower growth. On the other hand, Boston and San Francisco actually showed declines in their small asset inventory.
Other markets that are growing faster than the national average include the regional growth centers of Philadelphia, Denver and Houston.
Growth across the smaller metro areas (shown below) is spread over a collection of secondary markets, typically non-coastal cities, and include state capitals and university towns. Metros growing significantly faster than the US average rate include San Antonio, TX, Memphis, TN, Austin, TX, Madison, WI Charlotte, NC, Salt Lake City, UT and Columbus, OH.
While the growth share of small asset inventory can be a useful metric in your evaluation of investment markets, keep in mind that there are pros and cons on each side of the spectrum of growth. High-growth markets might be experiencing a high demand for small asset inventory, but increased supply could mean increased competition for renters. Markets with negative growth might not actually be experiencing lower demand, but perhaps smaller assets — which are often times older stock — have become obsolete.
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