The multifamily sector has remained strong throughout the COVID-19 pandemic. And a smaller subset of this sector, manufactured housing, has hit new heights during the last year, according to the latest research from JLL.
JLL’s Manufactured Housing Report says that valuations for manufactured housing communities hit an average of $46,970 per pad in the second quarter of 2021. That’s an all-time high for this housing type.
And JLL doesn’t expect manufactured housing’s hot streak to end soon. According to JLL’s report, early third-quarter transaction volume indicates that this sector will see the highest trailing four-quarter investment volume it has ever recorded at $4.5 billion. This, JLL says, will continue to exert a positive impact on manufactured housing valuations.
The last 12 months have brought a flurry of institutional investment activity in the manufactured housing sector, resulting in increased demand as investors sought to place capital in more recession-resilient sectors, JLL says.
“Increased investor and occupant demand, limited supply and consolidation of single assets and smaller portfolios all contributed to valuations reaching an all-time high,” said Scott Belsky, JLL Valuation Advisory National Practice Lead for Manufactured Housing, in a written statement.
Investment volume in manufactured housing communities soared to new levels in the third and fourth quarters of 2020. But despite this robust demand from investors, limited investment opportunities caused transaction volume to normalize in the first and second quarters of 2021, with the second quarter of 2021 dipping slightly to $4.3 billion.
Investor confidence in the sector continues to grow, as evidenced by low capitalization rates. In the second quarter of 2021, capitalization rates in this sector averaged an all-time low of 4.8 percent. This comes after a year-over-year decline of 50 basis points.
This has been a stable asset class, too. JLL reported that occupancy in manufactured housing reached an all-time high of 95.4 percent. The rate of rent growth increased throughout the pandemic to 2.6 percent, pushing average monthly rents to an all-time high of $800.
“The shortage of affordable housing is one of the largest unresolved issues in commercial real estate – and our society – today,” said Geraldine Guichardo, Director, Americas Living Research, in a statement. “Some renters struggle to find an affordable place to live, and the problem isn’t improving. Since the growing demand for affordable housing presents an opportunity for unconventional solutions, the manufactured housing industry may be well-positioned to reap the benefits of that pent-up demand.”
JLL predicts that investor sentiment in manufactured housing communities will remain optimistic through 2021 and into 2022, with a focus on value and risk, shaping investor behavior.