How Resident Mix Impacts the Conventional Apartment Market

The old real estate axiom of “location, location, location” is taking on a new meaning in the world of data analytics for the apartment market.

Property appeal often is dictated by its proximity to transportation as well as schools, restaurants, shopping and other urban amenities. The closer the apartment is to these and other creature comforts, the more likely U.S. apartment renters are to establish roots.

Renters vying for prime locations have typically been painted with a broad brush based on their age and income. Usually they have been considered young and single or married couples who are leasing to get on their feet.

But that’s changing. Within the mix of the country’s 57 million renters that occupy 20.8 million apartment units are eight distinctive renter segments that offer valuable, granular information to investors, according to recent RealPage research.

Study shows renter segments not the same from market to market

RealPage has identified renter profiles and their locations using a cluster analysis method based on 5.7 million lease transactions in 25 large metros and as many small markets. Markets were determined by region, economic growth pace and construction rate.

The search was based on renter age, income, marital/single status and whether children or pets were living in the apartment. Product selection behaviors were identified based on monthly rent, rent-to-income, unit size, product class, neighborhood (urban versus suburban) and length of stay.

The results say that the U.S. apartment renter households tend to fall in one of eight categories: Renters Starting Out (29 percent), Young Adult Roommates (21 percent), PermaRenters (16 percent), Middle-Income Boomers (11 percent), Moving on Up (8 percent), Working Families (6 percent), Young Couples (5 percent) and Pet People (4 percent).

Renter segments aren’t the same from market to market as one might suspect. Only a handful of big metros have renter profiles that mirror the national norm, and virtually every small market has unique variations.

“When we dig down to small metros, every one of them have some sort of distinct difference from the mix nationally,” RealPage Chief Economist Greg Willett said.

Putting to rest some really urban myths

Myths, like one that suggests older Baby Boomers are selling off their big suburban homes and downsizing to the luxury of the urban core market, were dispelled.

In the case of cool, affluent Baby Boomers who are perceived to be downsizing from suburban homes to top-end apartments in the urban core, they are, in fact, doing so in very limited numbers in markets that one wouldn’t normally suspect.

They’re not even typically making up the bulk of older apartment renters across the nation, says RealPage analyst Carl Whitaker. Most Boomer renters, which represent about 11 percent of apartment households nationally, earn modest incomes, are a median age of 62 and single. They tend to live in small Class B or C products in the suburbs in mature, old-school economies and retirement hubs, like Florida and Las Vegas. Surprisingly, the segment has a large presence in Cleveland, Grand Rapids and Albany.

But they have a high propensity to renew their leases, valuable insight for investors who want to market toward this demographic.

“We don’t have a lot of mobility within this group,” Whitaker said. “It’s interesting that this group came up in Cleveland and other Rustbelt markets.”

Other study highlights:

• The Starting Out Single and Young Adult Roommate group comprises about half of all renter household across all national markets. Large concentrations of Young Adult Roommates can be found in Indianapolis, Salt Lake City, San Jose and San Diego. They are also in small markets Salinas, CA; Des Moines; Colorado Springs; Baton Rouge and Montgomery, AL.
• Young Adult Roommates don’t hang around long. They have the shortest length of stay of renter profiles identified. The number one market for Young Adult Roommates is San Jose, where 41 percent of households are living in roommate arrangements – double the U.S. norm.
• While Moving on Up and Young Couples make up a small portion of all renter households (13 percent), they are attractive to investors. The groups in their early 30s and mid-to-late 30s, respectively, are fueling demand for new upscale properties nearby to their jobs. They have big incomes but home purchases in preferred neighborhoods can be a challenge. “These are groups that the developers really, really love,” Willett said. “We’re in a very active building environment and these folks are who are ending up in these properties.”

Using data to make investment, operational decisions at the local level

Willett said digging into the data far below the surface yields more information about the apartment industry that ever would have been mined several years ago. Categorizing renters by segment is important, but where they live offers greater insight. Without these visions, apartment operators could be missing revenue-generating opportunities.

“While understanding the U.S. apartment renter profile is helpful,” he said, “you want to make your multifamily investment decisions and operational decisions considering the audience that exists on the local level.”

For more on the study, watch the webcast, “Think They’re All the Same?”