‘Robust’ Multifamily Streak to Continue

The multifamily market should continue its robust growth streak for several more years, said Freddie Mac Multifamily, McLean, Va.

“It is now clear that the increase in multifamily demand is more than a temporary correction stemming from the Great Recession,” said Steve Guggenmos, senior director with Freddie Mac Multifamily investments and research.

Guggenmos said favorable demographic trends will support strong multifamily growth for at least the next few years.

“Certainly the U.S. apartment market has well exceeded expectations, and barring a major slowdown in the broader economy, those trends should continue,” agreed Jay Parsons, director of analytics and forecasts with MPF Research, Dallas.

Multifamily supply should continue to enter the market at “elevated levels,” reaching the highest level of completions since the 1980s, Freddie Mac said. So far, demand has kept pace with new supply, calming concerns about slowing growth. But Guggenmos said individual market performance will vary based on the pace of new supply delivered to the market and local economic strength.

Parsons agreed that that supply being at a nearly 30-year high does not represent a significant concern given because demand remains strong and the underlying demographic tailwinds should remain in place. “That said, the challenge is that so much of this supply is concentrated in geographically small urban areas,” he said. “We expect downtown submarkets to soften moving forward. Conversely, the suburbs–particularly suburbs with favorable demographics and proximity to jobs–should continue to thrive.”

Most markets nationwide show favorable current vacancy rates relative to historical averages, Freddie Mac said. Vacancies are trending upward, more slowly than predicted earlier this year. Rent growth varies across markets and will likely further disperse as new supply enters the markets.

“Net migration patterns among the major markets indicate more domestic movers are attracted to warmer areas with more affordable housing and stronger economies, such as Houston, Dallas and Phoenix; whereas immigrants prefer the larger cities of New York, Los Angeles and Miami,” the report said.

Guggenmos noted that favorable multifamily investment opportunities and a high volume of loans reaching maturity in the near future will continue to push origination volume up into 2016.