For the third and final post, we’re diving into what’s happening with commercial properties, with an emphasis on rental properties. 

Thanks to the housing shortage, apartment construction is ramping up as rents are surging right along with housing prices.


Commercial real estate trends

Rental rents are up 6% from a year ago. But if we calculate the annualized rate as the latest monthly rent increase multiplied by 12, the rate of increase is 10%. So, the rise in rental costs is accelerating, while rental vacancies are historically low.


Aside from a brief slump during COVID, rental households are rising. And NAR’s Chief Economist, Lawrence Yun, expects that trend to continue—creating a distinct advantage for anyone with rental investment property. 


As for other commercial properties, construction is booming for warehouses, crashing for retail/shopping malls, and staying pretty much the same for restaurants. 


What’s the deal with institutional investors? 

When Dr. Lawrence Yun testified on Capitol Hill on the state of the housing market, half the questions from the senators related to institutional investors and how this impacts first-time home buyers. 

The real concern is not so much about smaller investors but those with Wall Street backing who are buying up residential properties and converting them into rentals. 

These deals are going up, and they definitely impact the housing supply. More homebuyers, faced with low inventory and higher housing costs, will either continue renting or choose to rent and put their home ownership aspirations on the back burner. 

Because while rents continue to rise, rentals, for many, are still easier to get into. And that’s a trend worth challenging. 

Ownership Society vs. Rental Society

Senators aren’t the only ones concerned about the impact of institutional property buyers. 

Their increased presence in the housing market means fewer homes for homebuyers. Corporate investors can offer more and pay cash up front, making it harder for the average  homebuyer to compete. 

If this trend continues, home ownership will become increasingly difficult for more people in this country. 

It’s a definite concern, and it’s forcing us to ask the question: Do we want to see an ownership society in this country, or do we want to see a rental society? Because corporate buyers are steering us toward the latter. 

Most would argue that an ownership society is better because homeownership builds wealth. And for many, it’s the primary source of household wealth (if not the only one). 

So, how do we balance the scales and create an advantage for homebuyers?

Key takeaways for real estate agents

We know renters aren’t building equity with their monthly rent payments. Simply pointing that out isn’t enough to help your prospects get closer to home ownership. 

There’s more behind their current status as renters. So, talk to your prospects. Find out why they’ve chosen to rent—even temporarily—so you can address those pain points and get them closer to building real wealth.