Multifamily Bumps Industrial in Contest for CRE’s Strongest Outlook

The multifamily market has the strongest outlook among major commercial property types, said Ten-X, Irvine, Calif.

“Robust today, robust tomorrow,” the Ten-X CRE Outlook report said about the apartment sector. “Multifamily snatched the title belt from the industrial sector thanks to a more manageable supply pipeline and strong demand…When millennials aren’t living at home, they’re renting. Unemployment is low and wage growth is strong, but the single-family market remains inaccessible. This market gap is being filled by multifamily spaces.”

Ten-X noted demand for multifamily properties is projected to remain high this year and new deliveries will start to cool down starting in 2020. “This settling supply fixture is a bonus for the sector, keeping vacancies low and rent growth strong,” the report said. “In turn, net operating income growth projections are solid and valuations are on track for continued growth.”

RealPage, Richardson, Texas, said U.S. apartment occupancy continues to climb from the two-decade high it reached in May. “Strong leasing activity in this year’s peak season has continued to cause apartment vacancies to drop,” RealPage Analyst Julia Bunch said in a research brief. She noted July’s occupancy rate reached 96.2 percent, up 0.4 points year-over-year and the sector’s highest occupancy since 2000.

The highest rent-growth markets changed little in July, RealPage reported. Las Vegas earned the top spot for annual rent growth at 8.4 percent, followed by Phoenix at 8.3 percent and Sacramento, Calif., at 5.2 percent. Austin, Texas, Nashville, Tenn., Riverside, Calif., Charlotte, Atlanta, Milwaukee and Cincinnati all saw between 4 percent and 4.8 percent annual rent growth.

Wage growth is continuing to improve nationally and the labor market remains healthy despite some recent slowdown. “Bolstered by increasing wages, renters continue to drive demand and spur rental rate growth,” Ten-X said.

Ten-X said multifamily transaction volume continues to increase, with the southern and western regions having the highest apartment-buying activity this quarter. “California and Texas are standouts, with additional strong transaction volume momentum in the southeast and west,” the report said. “The largest U.S. metro areas, in particular, are seeing multifamily deal volume accelerate.”