New from MPF Research: Real Estate Steps Up As Asset Class; Rental Market Growth By Age Group
The multifamily industry is constantly evolving, and it’s important to keep up-to-date with apartment market intelligence and trends. We’ve brought you the latest updates from MPF Research to help you stay competitive.
Here’s our take on two major updates released by MPF:
Public real estate companies gain new stature as a financial class
The creation by index managers of the Real Estate sector, the eleventh Global Industry Classification Standard (GICS) sector, is testament to the increased attention investors are giving public real estate.
The GICS framework was developed in 1999 with 10 headline sectors, 24 industry groups, 67 industries and 158 sub-industries. All publicly traded companies could be segmented into their appropriate peer group. Until the reclassification, which took effect in August 2016, real estate had been lumped in with banks, insurance companies and financial firms under the Financials sector.
With the reclassification, two industry groups – Real Estate Management & Development and Real Estate Investment Trust, which relate to construction, owning and operating of property – were moved into the new Real Estate headline sector. The Real Estate Investment Trust group was renamed Equity REIT. But Mortgage REITs remain in the Financials sector, since they act as lenders by virtue of the purchase of debt and make a profit on the repayment of debt.
The reclassification validates public real estate as a distinct asset class, which had been “lost amid the banks and brokers over the years,” wrote David Blitzer, chairman of the index committee at S&P Dow Jones Indices, in a recent blog post.
The equity market cap of listed U.S. equity REITs jumped from $9 billion to roughly $900 billion over the last 2½ years, according to the National Association of Real Estate Investment Trusts (NAREIT). There could be some temporary volatility as diversified funds and investor portfolios are rebalanced to align with the new GICS breakdown. In the long run, greater awareness and understanding of public real estate will likely benefit the sector.
MPF Research breaks down growing rental market by age group
Over the past decade, rentership across the nation has grown to levels not seen since the 1980s. Rentership hit a low of just over 31% in 2004, but by 2005 the number of renter households was growing faster than the number of owner households for the first time. Rentership continued to rise as homeownership dropped throughout the housing crisis, and by 2015 renters made up to 36.3% of households.
So who are all the new renters?
There’s a surprise here. Millennials are called often “the renter generation,” and with a population larger than the Baby Boomers, they provide an easy way to explain away the change in the nation’s household mix. However, Millennials actually make up a smaller share of renter households today than the under 35 cohort has in the past two decades. The largest increase in the share of U.S. renter households is actually the 50- to 69-year-old cohort, the Baby Boomers themselves. They make up 9% more renter households today than they did 20 years ago. This being said, those 49 and under still make up the lion’s share of renters.
The Generation X group, aged 35 to 49, has seen a 9.8% increase in rentership since the trough in 2004. Still, they made up only 27.3% of renter households in 2015, down from the recent peak of 31.1% in 1996.
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