Multifamily Demand Remains Strong

Though U.S. multifamily rents remained essentially flat in September–the first month rents had not increased since January–year-over-year rent growth remained healthy at 3.0 percent, reported Yardi Matrix, Santa Barbara, Calif.

“The increases are down from the peak years of the cycle…but looking through a long-term lens represent very solid growth,” the Yardi Matrix Multifamily National report said, noting one especially encouraging metric: the occupancy rate of stabilized properties has increased recently, a sign that demand remains solid in the face of a heavy development pipeline.

Though apartment rents fell by a single dollar on average during September, the overall picture remains positive, Yardi Matrix said. The report called the $1 decline “insignificant, especially at the start of the fall, when rent growth traditionally begins to hibernate for winter.”

Strong demand represents good news for the sector, Yardi Matrix said. One major concern of the current multifamily market has been how occupancy rates would hold up to the steady wave of new supply. But since overall occupancy rates in stabilized properties bottomed at 95.0 percent in late 2017 and early 2018, they have slowly climbed back up to 95.4 percent.

Barbara Byrne Denham, Senior Economist with Reis, New York, said the apartment market had slowed in late 2017 and early 2018 as the housing market started to accelerate. “However, the passing of the Tax Reform and Jobs Act in December that doubled the standard deduction and cut the deductibility of state and local taxes reduced the incentive to buy a home,” she said. “This has helped the apartment market, especially in high-taxed localities.”

Healthy job growth continues to fuel demand for apartments, Byrne Denham said. The U.S. added an average of 207,000 jobs per month in the first eight months of the year, up from a 189,000 job per month average increase in the first eight months of 2017. The top metros for year-over-year job growth included Orlando, Fla., San Bernardino-Riverside, Calif., Colorado Springs, Colo., Austin, Texas and Dallas. No metro shows a loss of jobs over the year.

Byrne Denham said Reis expects apartment construction to remain “robust” for the rest of 2018 and the first half of 2019 before completions drop off. “Occupancy is expected to remain positive, although vacancy rates are expected to increase, as new supply will outpace demand growth,” she said. “Still, as long as job growth holds steady, we expect rent growth to remain positive over the next few quarters.”