‘Positive But Guarded’ Multifamily Outlook from Yardi Matrix

There remains a “consistent” positive case for multifamily investment, but said things could get “a bit bumpy” ahead, said Yardi Matrix, Santa Barbara, Calif.

The Yardi Matrix Multifamily Market Update said U.S. macroeconomic conditions are solid and generating job growth between 175,000 to 200,000 jobs per month, “enough to maintain multifamily occupancy and good–but decelerating–rent growth compared to 2012-2015.” This means the outlook for the multifamily sector remains “positive but guarded” for the next 18 to 24 months as upcoming supply gets absorbed.

Reis, New York, noted apartment sector vacancies rose 10 basis points during the third quarter to end the period at 4.5 percent. Asking and effective rents rose by a “paltry” 1.0 percent and 0.9 percent during the quarter, “which was in some sense surprising since the third quarter tends to remain strong, seasonally,” said Reis Chief Economist and Senior Vice President Victor Calanog.

Calanog said he expects to see moderating rent growth as the apartment market absorbs new supply. “Here’s a sector that’s been the superstar since 2010 and developers have responded to superb rent growth and tight vacancies by bringing more product to market,” he said. “We have already begun to record the standard delays that usually come up around this time of year, pushing supply additions to 2018.”

But Calanog noted 2017 remains on track to deliver more than 250,000 units in the top 82 markets. “That’s a number that we haven’t seen at the national level since the late 1980s,” he said. Indeed, this year and 2018 will be “banner years” for supply growth, Calanog said. “While we expect renter demand to continue to remain robust, we are predicting vacancies to rise given the amount of new projects that are coming online.”

Calanog called the steep dropoff in expected supply growth in 2019 a reason for optimism. “A lot of lenders and sources of finance have in fact pulled back on greenlighting multifamily construction, a process which began last year,” he said. “The train has left the station for the projects which have already broken ground–and the next 18 months will really be a time of reckoning for markets like New York, where it is expected that a record number of new properties will come online.”

The Mortgage Bankers Association reported a 15 percent increase year-over-year increase in dollar volume of loans for multifamily properties in the third quarter. Fannie Mae and Freddie Mac saw a 31 percent increase in dollar volume of loans from the second quarter to the third.