in 2011. The common perception that apartment renter demand is defying economic fundamentals is understandable
but only partially true. Favorable demographics among prime renters, the release of pent-up demand as young adults debundle
from family and roommates and increased renter demand due to falling homeownership certainly drove more renters
to apartment communities last year. At the same time, young adults captured a majority of the 1.8 million private-sector jobs
created over the past year, which emphasizes the importance of underlying economic performance as a major driver of rental
demand. This becomes more important in 2012 and beyond as the white-hot levels of post-recession net absorption cools off
to healthy but less-spectacular levels. Simply stated, we still need jobs to drive long-term demand. On that front, investors
should take comfort in the better-than-expected economic readings that streamed in month after month following the U.S.
debt downgrade in August of last year. Improvements in retail sales, private sector jobs and manufacturing point to a much
stronger economic footing than expected by most economists despite heightened macro concerns—namely the European
debt crisis and the U.S. political paralysis. It is unlikely that the macro clouds will measurably dissipate in 2012, but economic
momentum points to moderately better performance this year, certainly enough to support the apartment expansion cycle
now in full swing.
Developers are getting busy, as are lenders and equity investors, and after the brief pause in late 2011, we should see
more projects started, steadily boosting additions to supply over the next three years. For the time being, demand will outstrip
supply additions by a wide margin, leading to lower vacancy across virtually all markets and the first year of broadening rent
growth. Beyond 2012, caution in metro and submarket selection will be much higher as new supply ramps up
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