Vacancy in manufactured home communities is tightening across all regions of the U.S., as renters increasingly turn to low-cost housing options, according to a new national market report by Marcus & Millichap. The West’s Mountain region maintains the lowest vacancy rate nationwide at 5.1 percent, down 50 basis points from the previous year.
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The East North Central area of the Midwest posted the highest vacancy rate in the country at 14.6 percent, after experiencing the largest year-on-year drop of 110 basis points in July, the brokerage found. In the Mid-Atlantic and Northeast regions, vacancy stood at 5.9 percent and 6.3 percent, respectively; while in the Southeast and Southwest, vacancy was 5.9 percent and 4.3 percent.
Among metropolitan areas, the most supply-starved markets are Denver, Miami, Long Island and several markets in California where vacancy is below 1 percent. Rising occupancy is driving rent growth nationwide. The South registered the largest increase, with rent jumping 3.9 percent annually to $580 per month as of July. In the East, rent increased 3.7 percent.
Miami, Fort Myers and Naples, Fla., were among the metro areas that saw rent growth of more than 8 percent over the last 12 months. The costliest manufactured homes are found in Denver, where average rent stands at $736.
Investor competition for manufactured home communities is also heating up, as an abundance of buyers jostle for scarce assets listed for sale. This is causing some investors to adjust their parameters by considering smaller assets, hunting in secondary and tertiary markets, and considering properties with shortcomings such as a lack of city services, according to the report.
Among the factors drawing new investors to the sector are steady cash flows, the potential for higher returns and the reduced management headaches compared to other property types. The scarcity of product means that large top-tier community that do hit the market will attract multiple offers from a range of buyers, driving sale prices higher. Marcus & Millichap finds that cap rates for these assets tend to fall in the 4 to 5 percent range but can be as low as 3 percent.
Manufactured housing REITs are surging. In the 12 months through May 31, 2019, for example, the manufactured homes sector led all publicly traded U.S. equity REIT sectors by posting a 29.5x funds from operations (FFO) multiple.