After another year when the growth in multifamily housing exceeded expectations, apartment demand and property values could keep rolling through 2017.
“The forces that have produced the best multifamily market in recent memory remain largely in place,” says John Affleck, apartment research strategist for CoStar Group.
In a recent report from Real Capital Markets, 49% of investors polled said that multifamily remains an ideal investment in commercial real estate, and that the market doesn’t look like it will be slowing down any time soon.
The National Association of Home Builders expects multifamily starts to rise to 384,000 units, or 1,000 above last year’s number. Robert Dietz, NAHB’s chief economist, believes this pace is being driven by demographics and the balance between supply and demand.
CoStar actually forecasts that sales volumes, units per sale, and price growth of multifamily properties will finally level off this year from record highs. However, CoStar also acknowledges the sector’s momentum, where—through the third quarter of 2016—multifamily had the lowest vacancy rate (5.2%) of all major property types, and had seen rents rise by 3.9%.
Aggressive pricing aside, the sector’s record of steady rent growth and high occupancy with low volatility continue to make apartment properties an ideal defensive asset as the economic cycle extends into a seventh year, Affleck says.
CoStar predicts that the national vacancy rate for multifamily properties will increase to 5.6% this year and to 5.7% in 2018. Rental rate growth should moderate to 2.3% this year and 2.1% next.
Looking at last year's performance, CoStar foresees rent growth slowing and supply still exceeding demand in multifamily. Image: CoStar Portfolio Strategy.
David Brickman, Executive Vice President and head of Freddic Mac’s multifamily business, foresees a spike in renter households, spurred on by positive job growth and a stable economy. In addition, home prices are on the rise, which might cause renters to further postpone any residential purchases. And aging baby boomers continue to downsize into rental units.
Fannie Mae is a bit more conservative in its estimates about multifamily growth over the next two years. But Kim Betancourt, Fannie’s Director of Economics, doesn’t expect any moderation to be long lasting.
“Considering that rent concessions have declined steadily for nearly seven straight years, and that their current level is now below 1%, it is probably only a question of ‘when’ and not ‘if’ concessions begin to rise again,” Betancourt says.
CoStar’s Affleck sees the “unprecedented propensity to rent, even among the most affluent” as “the chief risk to this cycle,” because higher rents will inevitably coax more renters to consider homeownership, especially if interest rates stay relatively low.
Related Stories
Multifamily Housing | Aug 23, 2020
Designing affordable housing on odd urban lots in LA
"Misfit parcels" could be the key to providing more affordable housing in Los Angeles, say two experienced multifamily housing designers.
Multifamily Housing | Aug 16, 2020
TCA Architects specifies Engineered Floors products for 304-unit apartment complex in Tracy, Calif.
TCA Architects specified Lewis Rigid Stone Polymer floating plank and Lewis Gold 100% Solution-Dyed high-performance fiber carpet for Harvest in Tracy, Calif.
Multifamily Housing | Aug 3, 2020
71-unit 100% affordable housing development breaks ground in Mountain View, Calif.
Van Meter Williams Pollack is designing the project.
Multifamily Housing | Aug 2, 2020
Stantec-designed 17 West mixed-use development completed in Miami Beach
Stantec-designed 17 West mixed-use development completed, with first Trader Joe's in Miami Beach.
Multifamily Housing | Jul 31, 2020
Railings manufacturer VistaPro launches its new website
VistaPro Architectural Railing Solutions launches new website.
Multifamily Housing | Jul 29, 2020
Multifamily construction proposal activity sees modest rebound in Q2 2020
Among the firms that work in the multifamily sector, 31% said that proposal activity increased in the second quarter, while 24% said it decreased.
Multifamily Housing | Jul 29, 2020
San Francisco’s Millennium Tower fix approved, moving forward
Simpson Gumpertz & Heger will be the engineer-of-record for the fix.
Multifamily Housing | Jul 27, 2020
Putting 'home' at the heart of affordable housing
Home is a powerful thing. It’s the place that forms you, a guiding set of relationships, memories, and experiences that, for better or worse, make you who you are.
Multifamily Housing | Jul 20, 2020
Abandoned 15-story high-rise becomes mixed-use luxury apartment building
Kimmich Smith Architecture designed the project.