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 | Dec 22, 2016
Multifamily green financing programs grew rapidly in 2016
Multifamily green financing programs boomed in 2016, and are likely to continue to grow in 2017, according to the president of Partner Energy.
Market Data | Dec 21, 2016
Will housing adjust to an aging population?
New Joint Center report projects 66% increase in senior heads of households by 2035.
Multifamily Housing | Dec 15, 2016
Multifamily tower in St. Louis uses stacked design to make every apartment a corner unit
Designed by Studio Gang, the building’s stacked tiers will each comprise four floors and fan outwards as they rise up.
Multifamily Housing | Dec 12, 2016
BIG’s first residential condominium in the U.S. completed in Miami
Two 20-story twisting towers comprise 98 units on a three-acre site near Biscayne Bay.
Multifamily Housing | Dec 1, 2016
One of Canada’s largest media companies dives into real estate development
Rogers moves forward on M City, a multi-building, multi-year project in a Toronto suburb.
Multifamily Housing | Nov 28, 2016
Axiometrics predicts apartment deliveries will peak by mid 2017
New York is projected to lead the nation next year, thanks to construction delays in 2016
Sponsored | Multifamily Housing | Nov 11, 2016
Value engineering brings Santa Barbara apartments back on track
When framing estimates for a new apartment complex in Rialto, California, came in too high, a savvy developer decided to have the project value engineered. A switch to glulam and wood-framed shear walls got the project back in the black.
Adaptive Reuse | Nov 9, 2016
Middle school transformed into affordable housing for seniors
The project received $3.8 million in public financing in exchange for constructing units for residents earning less than 60 percent of the area’s median income.
Multifamily Housing | Oct 28, 2016
Aston Martin is making a foray into real estate in Miami
The British automaker will partner with G and G Business Developments on the waterfront project.
Multifamily Housing | Oct 25, 2016
The Beacon will become the most sustainable residential tower in the world
Lumiere Developments says the building will generate enough energy to offer residents ‘Free Energy For Life.’