The market outlook for Multifamily “continues to be positive,” and is expected to remain strong “for several more years,” according to Freddie Mac’s latest projections.
The multifamily rental market is in its sixth year of robust growth. And there are several reasons for optimism about the sector’s near-term future, says Steve Guggenmos, an economist and Senior Director of Multifamily Investments and Research with Freddie Mac. For one thing, “growing demand continues to put pressure on multifamily occupancy rates and rent growth.” Occupancy rate in the second quarter of this year, at 4.2%, fell to a 14-year low. Meanwhile, rent growth expanded by 3.7%.
The supply side “is just starting to catch up” with demand, and in the second quarter hit the highest level of completions—an annualized 285,000—since the 1980s. Newsday reported last week that demand for multifamily housing on Long Island, N.Y., pushed the number of local construction jobs—80,500 in August—to its highest level in at least a quarter century.
While completions nationwide could remain elevated over the next few years, demand should be able to absorb most of that supply, keeping vacancy rates down.
The multifamily sector is definitely benefiting from an improving economy that has released pent-up demand, says Guggenmos. Labor markets are growing (the unemployment rate stood at 5.1% in September, according to the Bureau of Labor Statistics). And Freddie expects the country to add more than 2.5 million new jobs in 2015. However, full employment “remains elusive,” and the one negative has been wage growth, which only now is starting to pick up but still lags rent growth.
Since the end of 2014, household formations have continued to rise, and the majority of those formations chose rental housing. Freddie expects that pattern to continue, for three reasons: the economy will get even better, Millennials are moving into adulthood, and positive net migration.
Guggenmos also cites the “strong appetite” among investors for multifamily properties, “especially in major markets.” And he expects origination volumes to remain on the upswing into 2016 because of favorable loan rates, property cash flows, evaluations, and increasing loan maturities.
Freddie foresees rent growth moderating to 2.9% in 2015, and to keep retreating to 2.4% in 2016, as vacancies (which it forecasts to inch up nationally to 4.9% in 2016) and rents converge to “a historic norm.” Freddie sees only three metros—Washington D.C., Austin, and Norfolk, Va.—where vacancy rates might be “meaningfully” higher than the long-run average in 2016. Conversely, Freddie sees Houston’s multifamily market is among those that are at the greatest risk of economic impact from low oil prices.
Related Stories
| Jan 3, 2012
Rental Renaissance, The Rebirth of the Apartment Market
Across much of the U.S., apartment rents are rising, vacancy rates are falling. In just about every major urban area, new multifamily rental projects and major renovations are coming online. It may be too soon to pronounce the rental market fully recovered, but the trend is promising.
| Dec 27, 2011
Ground broken for adaptive reuse project
Located on the Garden State Parkway, the master-planned project initially includes the conversion of a 114-year-old, 365,000-square-foot, six-story warehouse building into 361 loft-style apartments, and the creation of a three-level parking facility.
| Dec 12, 2011
Mojo Stumer takes top honors at AIA Long Island Design Awards
Firm's TriBeCa Loft wins "Archi" for interior design.
| Dec 5, 2011
Gables Residential brings mixed-use building to Houston's Tanglewood area
The design integrates a detailed brick and masonry facade, acknowledging the soft pastel color palette of the surrounding Mediterranean heritage of Tanglewood.
| Dec 2, 2011
What are you waiting for? BD+C's 2012 40 Under 40 nominations are due Friday, Jan. 20
Nominate a colleague, peer, or even yourself. Applications available here.
| Dec 2, 2011
Goody Clancy awarded Ohio State residential project
The project, which is focused on developing a vibrant on-campus community of learning for OSU undergraduates.
| Nov 29, 2011
Suffolk Construction breaks ground on Boston residential tower
Millennium Place III is a $220 million, 256-unit development that will occupy a full city block in Boston’s Downtown Crossing.
| Nov 15, 2011
Suffolk Construction breaks ground on the Victor housing development in Boston
Project team to manage construction of $92 million, 377,000 square-foot residential tower.
| Nov 15, 2011
Miller joins Perkins Eastman as regional manager, Middle East and Northern Africa
Miller joins Perkins Eastman with more than 48 years of experience in architecture, design management, and construction administration for planning and infrastructure.
| Nov 14, 2011
303 East 33rd Street building achieves LEED-NC
The 165,000 sf 12-story residential building is the first green development to be LEED certified in the Murray Hill neighborhood of Manhattan.