‘Healthy’ Multifamily Market Outlook

January 17, 2019

The multifamily market’s “healthy” performance should continue in 2019, sector analysts said.

Freddie Mac Multifamily, McLean, Va., predicted rent growth and vacancies will once again outperform historical averages into 2020 despite “elevated” new supply in the pipeline.

“Even with continued growth in supply, we expect vacancy rates to remain below historical averages in 2019,” said Freddie Mac Multifamily Research and Modeling Vice President Steve Guggenmos, noting he expects rent growth will reach 4 percent this year.

Guggenmos cited demographic trends and shifting consumer preferences toward urban areas as apartment sector drivers. He called the comparatively high cost of homeownership another important factor that will continue to drive healthy performance in the multifamily market.

Another measure of the multifamily sector’s strength: the average price per apartment unit purchased rose 8 percent year-over-year to $156,612 in 2018, reported Berkadia, New York.

Berkadia’s National Apartment Research Report said apartment occupancy rose 30 basis points during 2018 to reach 95.4 percent on average in the fourth quarter. “With the decline in affordability of homeownership, still-tight mortgage origination standards and low inventories of homes, demand for apartments is expected to persist,” the report said. But it predicted leasing activity will trail inventory growth to shift occupancy back to 95.1 percent by year-end.

Freddie Mac Multifamily said apartment property cap rates should begin to increase following rising U.S. Treasury rates. “Cap rates typically lag Treasury rates,” Guggenmos said. “Although they remained low and even fell slightly in 2018, the outlook projects rising cap rates in 2019 if Treasury rates move above 2018 highs.”

Multifamily loan origination volume could grow to $317 billion this year–exceeding the $305 billion in originations seen in 2018–driven by those solid market fundamentals and strong investor demand for multifamily properties, Freddie Mac Multifamily said.