Strong Multifamily Performance Despite Aging Cycle
The multifamily sector still has some room to run despite the “prolonged” real estate cycle, said Yardi Matrix, Santa Barbara, Calif.
“Although the recovery is starting to show signs of strain and market players are increasingly gaming out downside scenarios, 2019 should be another good year for the multifamily industry,” Yardi Matrix’s Strong Performance in an Aging Cycle report said. “Demand is expected to stay healthy as long as job growth remains positive and young adults and retirees choose apartments.”
Yardi Matrix noted some signs of strain in the U.S. economy and increasing stock market volatility that demonstrate increased investor concern about the economy, but it said job growth and consumer spending will likely remain healthy. Though GDP growth might not approach 3 percent again, it is unlikely to drop below 2 percent, the report said.
“We foresee another year of moderate rent increases,” Yardi Matrix said, predicting 2.5 percent to 3.0 percent rent growth nationally, led by metros in the south and the west that have strong in-migration and job growth. “Some of the greatest gains will come from fast-growing tertiary markets such as Tacoma, Colorado Springs and Reno,” the report said. “New York City rents will be relatively flat again, but no metro will see negative growth.”
Look for nearly 300,000 apartment unit deliveries nationally this year, similar to the last three years, Yardi Matrix said.
Marcus & Millichap, Calabasas, Calif, predicted that going forward, significant rental demand will center on apartments that serve the traditional workforce: Class B and C properties.
New inventory coming online largely caters to more affluent renters, Marcus & Millichap said. As a result, Class A vacancy could rise to 5.8 percent while Class B apartment vacancy will likely remain relatively stable. The most affordable market segment, Class C apartments, faces strong demand and vacancy for these units could tighten to 3.9 percent by year-end, the lowest year-end level in 19 years.
“While primary markets such as Boston, Los Angeles, the Bay Area and New York City are expected to see the largest dollar rent increases, smaller metros are generating faster increases on a percentage basis,” Marcus & Millichap said. “Metros across the southeast and Midwest in particular are generating outsize employment growth and housing demand.”
“Investors just can’t quit commercial real estate,” Yardi Matrix said. “As the economic cycle ages, investors are increasing allocations to safer asset types, which means a larger portion of commercial real estate dollars moving into multifamily and industrial [real estate].”
