Opportunities and challenges in the apartment sector
The apartment sector is likely to be well positioned in the year ahead, though rising inflation may create some challenges for residents.
“It’s a mixed bag,” said Edward Ring, founder and CEO of New Standard Equities, regarding expectations for the multifamily sector in the year ahead.
“As the proverbial ‘wallet share’ rises in markets where a resident’s true take-home pay is stagnant or even dropping due to inflationary effects, we’re going to see some cap rate decompression,” he cautioned. “If residents can’t support new rent levels, then investors can’t buy projects or build projects at perpetually rising costs.” By “wallet share,” he is referring to the percentage of one’s income that’s dedicated to housing.
“In Los Angeles, we’ve been seeing that number hover around 45 percent,” added Ring. “If you go back 20 years or so, that number was 40 percent, and we were starting to panic as the ‘rule of thumb’ should be