Rental Market Shakeup: Good or Bad for These 3 REITs? AvalonBay Communities, Inc. (AVB), Equity Residential (EQR)

Overall, a sunny forecast for REITs
Does this bode well or ill for the nascent single-family rental industry? While the article notes that the private-equity firm may have been disappointed with the returns, the company sources also commented that Och-Ziff wants to make money on the healthy rise in home prices in that section of the country. Even though this player is exiting the business, selling some of the renovated houses in their portfolios certainly sounds like it should eventually be part of the plan for Blackstone and Silver Bay as well.

Though the predictions from AvalonBay sound a bit dire, there was plenty of good news, too. A recent report from Reis, a real-estate research firm, noted that the rate of apartment vacancies dropped from 5.2% in the fourth quarter of 2011 to 4.5% in the last quarter of 2012. Even the fact that new apartments will be entering the market throughout the year doesn’t shake Reis’ belief that vacancies will stay low.

Despite the CEO’s concerns, AvalonBay’s own predictions for the coming year are rather upbeat as well. The company expects its current properties to produce revenue increases of 3.5% to 5%, while operating expenses are estimated to increase only by 3% to 4%. Net operating income is projected to rise by 4% to 5.5%. Reis also believes that rents will increase throughout this year but notes that wealthy clients of high-end rentals — such as Archstone — may decide to jump into the housing market now that the rebound seems permanent.

As for Brookfield, Reis reported last October that office vacancies were at their lowest point in nearly three years, particularly in large cities such as Manhattan. The research firm noted that tech and energy firms were snapping up office space in large cities, and, as a bonus, rents were rising, too. As the mortgage market picks up in response to a housing rebound, more financial-sector businesses should begin trickling into the lower Manhattan office-rental market as well.

The rental trade is a profitable one and should only become more so, as the economy improves — even AvalonBay expects 2014 and 2015 to be better than this year. And that’s good news for investors of every stripe.

The article Rental Market Shakeup: Good or Bad for These 3 REITs? originally appeared on Fool.com and is written by Amanda Alix.

Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool owns shares of Bank of America.

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