Flat homeownership levels and general economic growth will drive apartment rentals.
Los Angeles, CA (PRWEB) September 08, 2012
The Apartment Rental Industry has rebounded quickly from the recession to set new revenue highs in 2011 and 2012. The industry generates revenue through renting real estate, a substitute activity to home buying, so income fluctuates in line with rents and occupancy levels. Favorable demographic trends have driven up rental demand sharply from 2009 to 2012. Meanwhile, falling vacancy rates and an undersupply of rental units, most notably of multifamily units, are allowing industry operators to raise rents and increase industry revenue. According to IBISWorld industry analyst Doug Kelly, "high unemployment and stagnant incomes have also delayed a recovery in homeownership, which has further boosted rental demand." Consequently, IBISWorld expects industry revenue to increase 4.1% in 2012 to about $126.9 billion. Over the five years to 2012, industry revenue is expected to increase at an average annual rate of 0.8%.
Over the past five years, the Apartment Rental industry has also benefited from consolidation. The industry mainly comprises small, independent lessor firms, as nonemployer firms account for a significant share of industry establishments in 2012. At the same time, these firms account for only a small percentage of industry revenue compared with those assocated with real estate investment trusts (REIT). REITs act as investment vehicles for investors who want to own commercial property, but may not have the means or access to acquire an entire property on their own. Prior to the recession, REITs aggressively expanded their real estate portfolios by leveraging assets and issuing equity. At the same time, "smaller companies looked to reduce risk by diversifying operations," says Kelly. These entities diversified their businesses by expanding operations beyond their traditional regional market through corporate acquisitions and property purchases. As a result, industry participants consolidated operations in an attempt to improve their ability to raise capital.
Despite improved operations and declines in homeownserhip rates, the industry was not left unscathed during the recession. The economic downturn caused spikes in vacancy rates and lower rental household formation, which hampered industry revenue and profit. Reduced lending from the financial sector also slowed residential leasing business activity because real estate owners use debt to finance purchases, develop property and refurbish buildings. Some companies struggled to maintain normal operations, particularly firms that overleveraged their real estate holdings prior to the recession.
Over the five years to 2017, revenue is forecast to increase steadily. During this period, the combination of still-weak demand for homeownership and general economic improvement will likely drive revenue growth. Homeownership levels are expected to remain flat over the majority of the years to 2017, due to elevated unemployment and interest rates, continued tight lending standards and changes in consumer sentiment toward housing. US demographic changes, particularly regarding population trends and marital rates, will likely limit demand for homeownership which will support ongoing demand for apartment rentals. For more information, visit IBISWorld’s Apartment Rental in the US industry report page.
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IBISWorld industry Report Key Topics
Operators in this industry act as lessors of buildings that are used as residences or dwellings. Industry participants include owner-lessors of residential buildings and establishments that rent real estate and then act as lessors by subleasing it to others. In addition to apartment rentals, the industry also includes single-family homes and town houses.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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