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Class A Apartments Outpace Other Classes for Demand
Demand for high-end apartment rentals is outperforming other segments in recent quarters, notwithstanding added competition presented by historic amounts of new supply being delivered, according to a new report from Institutional Property Advisors (IPA), a division of Marcus & Millichap. Class A vacancies rose by 30 basis points in the second quarter, compared with increases of 40 and 80 bps in Class B and C, respectively.
“Today’s high barriers to homeownership are helping support demand for high-end apartments, particularly among the millennial demographic,” said John Sebree, SVP and national director of IPA’s multi housing division.
Class A apartment rent growth has eased after historic gains during 2021 and 2022, while home prices and mortgage rates have continued to increase, the report states. These divergent trends have made high-end apartments more affordable relative to homeownership.
High-density coastal markets have been among the strongest performers for Class A apartments recently. Many of these locations have an outsized population share of 25-to-44-year-olds and extreme homeownership barriers, leading higher-income households to luxury rentals.
Although investment activity for higher-end apartments has remained soft in recent quarters as many institutional groups stayed on the sidelines,. financial markets stability should prompt greater trading velocity in the coming quarters, IPA says.
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