Multifamily’s long-term outlook rebounds to pre-covid levels in Q3

After dipping in the previous two quarters to levels unseen in nearly a decade, the Multifamily-for-Rent outlook for design and construction firms returned to pre-COVID levels in the 3^rd Quarter, according to the PSMJ Resources’ Quarterly Market Forecast (QMF). The market’s net plus/minus index (NPMI) reached 40% for the 3^rd Quarter, following quarters of -2% and +7%, respectively, in the first half of 2020. The negative index in the 1^st Quarter was the first for the Multifamily market since 2010.

"The entire Housing market is showing impressive growth potential based on A/E proposal activity,” said PSMJ Senior Principal David Burstein, PE, AECPM. “This view is reinforced by government statistics for housing permits and new home starts. Multifamily housing (apartment buildings) took a brief pause from its 10-year growth surge when the COVID-19 crisis first hit in March, but has since recovered quite nicely. The condominium market actually saw a significant dip this spring, but more recently is showing signs of recovery, albeit not to the same levels as Multifamily-for-Rent.” 

PSMJ’s NPMI expresses the difference between the percentage of firms reporting an increase in proposal activity and those reporting a decrease. The QMF has proven to be a solid predictor of market health for the architecture and engineering (A/E) industry since its inception in 2003. A consistent group of over 300 A/E firm leaders participate regularly, with 162 contributing to the most recent survey.

Multifamily-for-Rent Market Proposal Activity – 1Q08 to 3Q20 (NPMI)

The Multifamily market returned to positive territory out of the Great Recession in the 4^th Quarter of 2010 with an NPMI of 24%, then jumped to 44% in the 4^th Quarter of 2011. It never dropped below 41% again until it plummeted from 54% in the 4^th Quarter of 2019 to -2% in the 1^st Quarter of 2020. 

“Many of the factors that drove Multifamily's growth pre-COVID remain in place,” adds Burstein. “Plus, there is now a new factor – the potential flight of many people from cities to suburbs – which is shifting the location of the demand. So we believe the Multifamily market will continue to be strong into the foreseeable future.”

Condominium proposal activity soared to a positive NPMI of 11% in the 3^rd Quarter, up from -26% in the 2^nd Quarter. The Condo market took longer to recover from the last recession than Multifamily-for-Rent did, not rebounding to positive numbers until late 2012. Its NPMI generally stayed in the 20% and 30% range for the next seven years running, until plummeting from 22% in the 4^th Quarter of 2019 to a nine-year low of -28% in the 1^st Quarter of 2020.

Condominium Market Proposal Activity – 1Q08 to 3Q20 (NPMI)

The Multifamily rebound was part of overall improving conditions for the Housing market, which paced all 12 of the major markets assessed in the QMF with an overall NPMI of 38%. Among other Housing submarkets, Single-Family Property (individual houses) also recorded a 40% NPMI (up from 9%), with Single-Family Development (Subdivisions) at 27%, up from -12%, and Senior & Assisted Living (Independent Living) at 26%, up from -1%,.

Among the 12 major markets surveyed, Water/Wastewater was a close second to Housing at 37%, followed by Healthcare (30%), Energy/Utilities (28%) and Light Industry (27%). Overall proposal activity across all markets and submarkets returned to growth mode in the 3^rd Quarter with an NPMI of 22%, up from -10% in the 2^nd Quarter. The three worst-performing major markets in the 3^rd Quarter were Education (-36%), Commercial Users (-31%) and Commercial Developers (-21%).

PSMJ Resources, a consulting and publishing company dedicated to the A/E industry, has conducted its Quarterly Market Forecast for more than 17 years. It includes data on 12 major markets and 58 submarkets served by A/E firms. For more information, go to https://www.psmj.com/surveys/quarterly-market-forecast-2.