Even if there is an economic downturn in the near future, the apartment sector is likely to hold up, according to industry experts.
“Apartments are still resilient against a possible recession,” says Andrew Rybczynski, senior consultant for CoStar Group Portfolio Strategy.
Though the high end of the market may be feeling the strain of overbuilding, the sector overall is benefitting from long-term trends that should continue to fill apartment units for the foreseeable future.
“In 2005 and 2006, we knew we were living on borrowed time. We knew the fundamentals didn’t makes sense,” says John Sebree, director of the national multi housing group with real estate services firm Marcus & Millichap. “Today, the apartment industry fundamentals are so strong, I don’t think a potential recession would affect us that much.”
Luxury apartments most at risk in a downturn
However, some parts of the apartment sector are less resilient than others. The properties most vulnerable are already suffering from competition from new development.
“Metros and individual neighborhoods adding lots of new apartments likely would feel the pain most immediately in a national recession,” says Greg Willett, chief economist for RealPage Inc., a provider of property management software and services.
Roughly half of new apartments under construction are concentrated in about 15 metropolitan areas. Even within these metro areas, new construction is often concentrated in downtowns and central business districts (CBDs). “It would be tough to get so many new units through initial lease-up in an environment lacking job production,” says Willett.