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Student Debt Giving the Apartment Industry a Huge Boost

05/08/2015

Currently, the apartment industry is getting a huge boost from student debt. During the first quarter of 2015, several economic indicators were noted. For one thing, the economy was relatively soft and employment dropped from fourth quarter 2014. In addition, the gross domestic product did not experience the same level of growth seen in prior quarters. Also, both retail sales and manufacturing output was down. In spite of this, residential and commercial real estate did considerably well.

 

On the national average, most of the major metrics for real estate came in stronger in the first quarter of this year compared to 2014 although there is a lot of variation from a local perspective. For commercial real estate, one of the primary drivers for the US has to do with growing business confidence.

 

Stronger Commercial and Retail Markets

 

As indicated by bulldogreporter.com, businesses that were hesitant to expand before, even though there was increased demand for goods and services, are now hiring more people. Ultimately, this equates to additional space being needed. Regardless, vacancy levels dropped in 41 of the 62 metropolitan markets, rose in 18, and was unchanged in 3.

 

In looking at the retail market there has been slow recovery from the recession as reported on by Inc. Even today, the way in which consumers make purchases has changed. While some sectors are doing extremely well, others are facing major struggles. However, there has been overall improvement specific to the retail world with more improvements anticipated.

 

Increased Apartment Demand

 

Now, people are focusing on the apartment market, trying to determine how it will fare. From reports, it appears that there is still room for additional occupancy, as well as rent growth. After the initial shock of the recession was over and the market headed into recovery, demand for apartments grew significantly. Over the past several years, development has continued to improve although there remains a shortage of supply.

 

One huge advantage that apartment owners and developers have is that a large number of people are now coming of age. These young people do not want or are not ready to start an actual household and for many, they are still not making a significant amount of money.

 

The other factor is that a large number of the younger generation is carrying a tremendous amount of student loan debt. According to US News, on average an individual carries $30,000 in debt specific to student loans. All of these factors combined equates to increased demand for rental properties. In support of this, demand for apartment living climbed in the first quarter of this year.

 

Using historical standards, occupancy is still high. However, experts anticipate that throughout this year, effective rent growth will remain strong. For the apartment industry, this is great news. Although there are many things that play into growing demand for apartments, without question significant student loan debt is major.

 

Although there are diversions and repayment schedules available, on average it takes up to 10 years to pay off student loans. This means while the younger generation may reach a point of wanting single family living it is not a realistic option for some time.

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