Real Estate

RentCafé: 87% of units delivered in 2018 are luxury

The lion's share of new construction is luxury product, could threaten rent growth

Luxury rentals made up 87% of all large-scale developments delivered in the first half of 2018.

According to an analysis from RentCafé, luxury rentals, Class B+ and above, dominate the multifamily market’s deliveries and they have been since 2015. If the trend holds, Yardi data indicates that of the 80,000 large-scale apartment development under construction across roughly 130 U.S. markets, more than 80% could fall into the high-end category.

As recent as 2015, three quarters of new apartment construction fell into the luxury category. By 2017 that number crept up to 79%, and so far, this year, it is looking like that number soar even higher.

Though the trend is nationwide, it is particularly prevalent in the Southwest and Mid-Atlantic regions where 88% and 87% of the project built there are high-end, respectively.

Some metros are receiving exclusively luxury product, and even more got nearly exclusive luxury deliveries in first half of 2018.

Dallas-Fort Worth, Houston, Kansas City, Charlotte, Detroit, and Cleveland only had luxury deliveries in H1 2018.

These are all markets with lots of growth potential, secondary markets that are working toward the top.

Nationally, the total percentage of luxury units in the multifamily inventory is 23% as of the end of H1 2018. The city with the highest percentage of luxury units is Charlotte with a whopping 50% of its inventory dedicated to luxury product. Second place goes to Austin at 45% luxury; third place goes to Las Vegas with 38% of its units falling in the luxury category; Boston came in fourth place at 37%; and Houston came in fifth at 36% luxury market share.

This could present a problem for the owners of luxury properties as over-saturation could end up taking halting or even reversing rent growth in the luxury bracket.

Conversely, this might be one of the first steps toward a natural equilibrium between supply and demand that takes some of the sting out of the affordability crisis.

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