Boise Market Multi-family Forecast
Tenant demand remains strong as home ownership declines. Property owners and investors should feel confident with asset performance. Among key demographic and economic drivers, job creation and household formation during 2017 translated again into positive net absorption of units. In 2017, projected job creation and rental household formation will support demand, while favorable demographic trends will also translate to low vacancy rates and steady rental increases.
The entrance of Millennials into the workforce remains a potent force in the multifamily sector as these individuals have a high tendency to rent. Nationally, the home ownership rate descended to a 51-year low of 62.9% last year and is projected to remain in the low 60% band in 2017. The low rate is not altogether surprising given the Millennial's desire to remain mobile as well as their burdensome student debt. In addition, a cultural trend towards later marriage and family formation should translate into sustained demand for rentals and extend for the next 10 years in apartments.
A peak in construction is expected in 2017. Issuing of permits has been leveled off as construction lenders are exercising discretion and critically assessing the experience of development teams. In addition to conservative permit proposals, construction employment in Boise rose 7 percent between March 2015 and March 2016, from 19,000 jobs to 20,300. The increase in apartment construction this year coincides with growth trends. Completions of luxury rentals will exert more pressure on the class A vacancy rate in 2017, while performance of Class B and Class C assets will encourage further reconsideration of investment strategies.
Some newer assets will benefit from strategic locations in nice neighborhoods While others will face competition from a wave of development. In Boise, although we are facing significant apartment additions, we also have a captive renter pool as home prices are elevated. Even with the addition of over 3,000 units to our market in 2017, the vacancy rate in the Treasure Valley has hovered between 2 and 3.5 percent for four years, according to Mountain States Appraisals in Boise. While the vacancy rate hovers below market equilibrium, it has given property managers the opportunity to increase rental rates. This is promising news for both owners and managers for the last half of 2017.