By the end of 2015, 49 of 54 U.S. markets tracked by CoStar Group, the commercial real estate research firm, are expected to see their apartment vacancy rates increase.
That would suggest that supply in the multifamily sector is catching up with—or in several markets surpassing—demand. Last year, the 340,000 multifamily units started represented the highest level of construction since the 1980s. And some 20,000 new apartments are expected to come online in both Dallas and Denver alone this year.
Yet, despite the threat of oversupply there appears to be a consensus emerging, that positive demographic and economic forces could keep multifamily demand robust—and construction humming—at least through 2016.
The ever-optimistic National Association of Home Builders, for example, forecasts 358,000 multifamily starts in 2015, a level that Robert Denk, NAHB’s senior economist, thinks is “healthy and sustainable.” He told Multifamily Housing News recently that he expects that construction level to be maintained “for the next couple of years.” Denk also expects the country’s economic growth rates to be “high” in 2016.
In its Fourth-Quarter and Year-End 2014 Report, CoStar acknowledges that developers may need to “dial back” new construction after 2015 to keep vacancies (which ended last year at their lowest point in 10 years) and rents at healthy levels. CoStar estimates that new supply could push vacancy rates to 5.5% by the end of 2015.
On the other hand, today’s renter cohort, comprised largely of Millennials, “will take longer to transition into home buying than any demographic group in the last 30 years—obviously a good trend for apartment owners,” says CoStar. The research firm also foresees a 2-million-person increase in Millennial employment over the next few years, resulting in 1.53 million new households. “Apartment investors will find plenty of demand for new product.”
While some renters eventually will start families and relocate to homes in the suburbs, “a larger share of older households will be in the rental market,” mostly for lifestyle reasons. CoStar expects landlords to make a concerted effort to address the needs of renters as they age.
Multifamily as an asset class now exceeds $3 trillion, according to Andrew Florance, Founder and CEO of CoStar Group, which has detailed information on over 450,000 apartment properties in its database, the industry’s largest. More than 100 million Americans now rent, and 30 million people move annually. On Feb. 17, CoStar re-launched Apartments.com, its website for online searches of apartments, condos, and rental homes. Florance projects that, based on anticipated demand, within the next 10 years CoStar Group could achieve $550 million in annual revenue and $250 million in annual cash flow from this site.
CoStar will invest $75 million into marketing Apartments.com in 2015, a multimedia campaign that is scheduled to kick off on March 1.
Related Stories
| Jul 25, 2013
First look: Studio Gang's residential/dining commons for University of Chicago
The University of Chicago will build a $148 million residence hall and dining commons designed by Studio Gang Architects, tentatively slated for completion in 2016.
| Jul 19, 2013
Reconstruction Sector Construction Firms [2013 Giants 300 Report]
Structure Tone, DPR, Gilbane top Building Design+Construction's 2013 ranking of the largest reconstruction contractor and construction management firms in the U.S.
| Jul 19, 2013
Reconstruction Sector Engineering Firms [2013 Giants 300 Report]
URS, STV, Wiss Janney Elstner top Building Design+Construction's 2013 ranking of the largest reconstruction engineering and engineering/architecture firms in the U.S.
| Jul 19, 2013
Reconstruction Sector Architecture Firms [2013 Giants 300 Report]
Stantec, HOK, HDR top Building Design+Construction's 2013 ranking of the largest reconstruction architecture and architecture/engineering firms in the U.S.
| Jul 19, 2013
Renovation, adaptive reuse stay strong, providing fertile ground for growth [2013 Giants 300 Report]
Increasingly, owners recognize that existing buildings represent a considerable resource in embodied energy, which can often be leveraged for lower front-end costs and a faster turnaround than new construction.
| Jul 17, 2013
Top Multifamily Construction Firms [2013 Giants 300 Report]
Lend Lease, Clark Group, Balfour Beatty top Building Design+Construction's 2013 ranking of the largest multifamily contractors and construction management firms in the United States.
| Jul 17, 2013
Top Multifamily Engineering Firms [2013 Giants 300 Report]
STV, URS, AECOM top Building Design+Construction's 2013 ranking of the largest multifamily engineering and engineering/architecture firms in the United States.
| Jul 17, 2013
Top Multifamily Architecture Firms [2013 Giants 300 Report]
IBI Group, Niles Bolton, Perkins Eastman top Building Design+Construction's 2013 ranking of the largest multifamily architecture and architecture/engineering firms in the United States.
| Jul 17, 2013
CBRE recognizes nation's best green research projects
A rating system for comparative tenant energy use and a detailed evaluation of Energy Star energy management strategies are among the green research projects to be honored by commercial real estate giant CBRE Group.
| Jul 16, 2013
Amid single-family housing’s comeback, rental market not skipping a beat [2013 Giants 300 Report]
As the economy recovers and homeownership becomes a realistic option for more consumers, will it spell the end of the multifamily sector’s hot streak? The experts say no.
