All leading indicators show that the multifamily sector is shrugging off rising interest rates, inflationary pressures and other economic challenges, and will continue to be a torrid market for design and construction firms for at least the rest of 2022.
CBRE reported that Multifamily remained the most preferred commercial real estate sector for investment in the 2nd Quarter, with a 32% year-over-year increase in volume to $78 billion, and the Federal Reserve reported strong multifamily results across all districts in its 2022 July Beige Book. At the same time, Rent.com reported that year-over-year rents grew 25.3% and 26.5% for one- and two-bedroom apartments, respectively, and the U.S. Census Department announced that apartment vacancy rates remained near record lows (5.6% in the 2nd Quarter of 2022).
The PSMJ Resources Quarterly Market Forecast (QMF) survey of architects, engineers and contractors reinforces this view. While more than two-thirds (67.2%) of the firm leaders surveyed said that proposal activity in the multifamily market increased from the 1st Quarter of 2022, only 6.3% reported a decline. The resulting net plus/minus index (NPMI) of 60.9 – which is the delta between the percentage of respondents seeing a rise and fall in proposal activity – is down from the record-setting 1st Quarter NPMI of 82.4, but is still among the best quarters since PSMJ began measuring proposal opportunities in submarkets in 2006.
PSMJ Director and Senior Consultant David Burstein, PE, acknowledges the current strength of the entire housing market, but expects a turnaround in the not-too-distant future, albeit a minor to moderate one. “The housing market, including multifamily housing, has been red hot. But it may be on the verge of cooling off a bit,” he says. “A recent analysis by CNBC indicated that the average mortgage payments for a house purchased in 2019 was $1,192 per month. With the increase in home prices and interest rates, the mortgage on that same house is now $1,991 – an increase of almost $800 per month. Wages have gone up since 2019, but they haven’t gone up enough to account for that difference in mortgage costs. The net result will be fewer families able to afford a new home.”
This will have an impact on multifamily as well, adds Burstein. “The increase in interest rates also affects developers’ ability to finance new multifamily rental buildings. And the Fed has indicated that they aren’t close to topping out on their rate increases. So I expect the pace of new multifamily to slow significantly in the next few months. And those projects that do move forward will probably be for lower-cost properties.”
To Burstein’s point, the National Association of Home Builders (NAHB) Multifamily Market Survey weakened in the 1st Quarter of 2022 (the latest figures available), with confidence in market-rate rentals and for-sale apartments sliding. Only lower-rent properties supported by government programs showed a small increase in confidence among the builders responding to the survey.
Despite this caution, the forward-looking QMF survey also anticipates relatively healthy futures for two other multifamily submarkets it measures – condominiums and senior/assisted living.
Condominiums recorded an NPMI of 47.9 in the 2nd Quarter of 2022, its second-highest reading ever. Only the 2nd Quarter of 2021, when condos scored an NPMI of 59.2, was better. More than 54% of respondents working in the condo market saw higher proposal activity in the 1st Quarter, compared with about 6% that saw a decrease.
Proposal opportunities in senior/assisted living facilities also impressed, recording an NPMI of 58.8 – 62.7% saw an increase in activity, while only 3.9% reported a decline.
PSMJ has been conducting the Quarterly Market Forecast survey of its members since 2003. The A/E/C consulting and publishing company chose proposal activity as the basis for its QMF because it represents the earliest stage of the project lifecycle. For more information, go to https://www.psmj.com.
Related Stories
Multifamily Housing | May 17, 2017
Swedish Tower’s 15th floor is reserved for a panoramic garden
C.F. Møller’s design was selected as the winner of a competition organized by Riksbyggen in Västerås.
Mixed-Use | May 17, 2017
The Lincoln Common development has begun construction in Chicago’s Lincoln Park
The mixed-use project will provide new apartments, condos, a senior living facility, and retail space.
High-rise Construction | May 15, 2017
Construction begins on 47-story luxury tower in Chicago’s South Loop
The glass tower is being built at 1326 S. Michigan Avenue.
Multifamily Housing | May 10, 2017
May 2017 National Apartment Report
Median one-bedroom rent rose to $1,012 in April, the highest it has been since January.
Multifamily Housing | May 10, 2017
Triple Treat: Developer transforms mid-rise into unique live-work lofts
Novus Residences’ revolutionary e-lofts concept offers tenants a tempting trio of options—‘live,’ ‘live-work,’ or ‘work’—all on the same floor.
Multifamily Housing | May 3, 2017
Silicon Valley’s high-tech oasis
An award-winning rental complex takes its design cues from its historic location in Silicon Valley.
Multifamily Housing | May 2, 2017
Multifamily housing: 7 exciting, inspiring innovations [AIA Course]
This AIA CES course features seven novel approaches developers and Building Teams are taking to respond to competitive pressures and build more quickly and with more attractive offerings.
Multifamily Housing | Apr 26, 2017
Multifamily amenity trends: The latest in package delivery centers
Package delivery centers provide order and security for the mountains of parcels piling up at apartment and condominium communities.
Multifamily Housing | Apr 26, 2017
Huh? A subway car on the roof?
Chicago’s newest multifamily development features an iconic CTA car on its amenity deck.
Multifamily Housing | Apr 18, 2017
Three multifamily, three specialized housing projects among 14 recipients of the AIA’s 2017 Housing Awards
2017 marks the 17th year the AIA has rewarded projects and architects with the Housing Awards.