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
Giants 400 | Nov 18, 2021
2021 Multifamily Sector Giants: Top architecture, engineering, and construction firms in the U.S. multifamily building sector
Clark Group, Humphreys and Partners, and Kimley-Horn head BD+C's rankings of the nation's largest multifamily building sector architecture, engineering, and construction firms, as reported in the 2021 Giants 400 Report.
Sponsored | | Nov 15, 2021
How TDK Construction Saves Time and Money with EXACOR™ MgO Panels: Getting in on the Ground Level
Smart decisions made at the start of multifamily design-builds can improve efficiency on the job site, keeping projects on-time and on-budget, so you can make your properties profitable sooner. TDK Construction did just that on a recent luxury apartment project in Tennessee.
Multifamily Housing | Nov 14, 2021
How to build better parking for multifamily housing projects
In designing and building multifamily projects, parking determines everything from site suitability to the building’s footprint to revenue optimization.
Multifamily Housing | Nov 9, 2021
MAD Architects unveils One River North design
The project is set to rise in Denver.
Hotel Facilities | Nov 3, 2021
California’s Hotel del Coronado is finishing up the final piece to its Master Plan
A 75-residence Shore House will be family oriented and meeting commodious.
Multifamily Housing | Nov 3, 2021
Courthouse becomes mixed-income housing development
The project is located in Worcester, Mass.
Adaptive Reuse | Nov 1, 2021
CallisonRTKL explores converting decommissioned cruise ships for housing
The rapid increase in cruise ship decommissioning during the last 18 months has created a unique opportunity to innovate and adapt these large ships.
Multifamily Housing | Oct 31, 2021
Developer chooses ductless HVAC system for the Lofts at Empire Yards
Georgia developer chooses ductless systems for their performance, quiet operation, and efficiency 'in a nice, sleek package.'
Multifamily Housing | Oct 31, 2021
Propane tankless water heaters conserve water and energy
Propane tankless water heaters offer efficient, on-demand hot water for multifamily buildings.
Cladding and Facade Systems | Oct 26, 2021
14 projects recognized by DOE for high-performance building envelope design
The inaugural class of DOE’s Better Buildings Building Envelope Campaign includes a medical office building that uses hybrid vacuum-insulated glass and a net-zero concrete-and-timber community center.