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
Multifamily Housing | Sep 5, 2017
Free WiFi, meeting rooms most popular business services amenities in multifamily developments
Complimentary, building-wide WiFi is more or less a given for marketing purposes in the multifamily arena.
University Buildings | Sep 1, 2017
The University of Texas receives boutique-style student housing complex
The Ruckus Lofts provide 46 furnished units and 165 beds for UT students.
Mixed-Use | Aug 30, 2017
Former industrial building becomes 'lifestyle community' in ever-evolving Baltimore
The new community offers 292 apartments with 20,000 sf of retail space.
University Buildings | Aug 25, 2017
‘Chapel of food’ becomes one of Clemson’s go-to spaces on campus
The new dining hall is part of the school’s ongoing efforts to maintain its standing among the country’s top 20 public universities.
Multifamily Housing | Aug 24, 2017
Storage units, lounges most popular indoor and outdoor amenities in multifamily developments
Tenants and condo owners crave extra space for their stuff. Most developers are happy to oblige.
Mixed-Use | Aug 15, 2017
A golf course community converts into an agrihood with 1,150 homes and a working olive grove
The community will cover 300 acres in Palm Springs, Calif.
Multifamily Housing | Aug 14, 2017
Co-living: The next real estate disruptor or niche market?
From a practicality standpoint, co-living makes complete sense for young, single, and highly mobile working professionals.
Multifamily Housing | Aug 9, 2017
Related Companies unveils plans for One Hudson Yards luxury rental residences
The 33-story tower will be positioned on the High Line with views of the Hudson River and downtown Manhattan.
Multifamily Housing | Aug 9, 2017
Multifamily developers, designers cater to occupants’ need for mobility
Bike storage facilities and “bicycle kitchens” are among the most popular mobility amenities in multifamily developments, according to a new survey by Multifamily Design + Construction magazine.
Mixed-Use | Aug 9, 2017
Mixed-use development will act as a gateway to Orange County’s ‘Little Saigon’
The development will include apartments, ground-floor retail, and a five-story hotel.