After another year when the growth in multifamily housing exceeded expectations, apartment demand and property values could keep rolling through 2017.
“The forces that have produced the best multifamily market in recent memory remain largely in place,” says John Affleck, apartment research strategist for CoStar Group.
In a recent report from Real Capital Markets, 49% of investors polled said that multifamily remains an ideal investment in commercial real estate, and that the market doesn’t look like it will be slowing down any time soon.
The National Association of Home Builders expects multifamily starts to rise to 384,000 units, or 1,000 above last year’s number. Robert Dietz, NAHB’s chief economist, believes this pace is being driven by demographics and the balance between supply and demand.
CoStar actually forecasts that sales volumes, units per sale, and price growth of multifamily properties will finally level off this year from record highs. However, CoStar also acknowledges the sector’s momentum, where—through the third quarter of 2016—multifamily had the lowest vacancy rate (5.2%) of all major property types, and had seen rents rise by 3.9%.
Aggressive pricing aside, the sector’s record of steady rent growth and high occupancy with low volatility continue to make apartment properties an ideal defensive asset as the economic cycle extends into a seventh year, Affleck says.
CoStar predicts that the national vacancy rate for multifamily properties will increase to 5.6% this year and to 5.7% in 2018. Rental rate growth should moderate to 2.3% this year and 2.1% next.
Looking at last year's performance, CoStar foresees rent growth slowing and supply still exceeding demand in multifamily. Image: CoStar Portfolio Strategy.
David Brickman, Executive Vice President and head of Freddic Mac’s multifamily business, foresees a spike in renter households, spurred on by positive job growth and a stable economy. In addition, home prices are on the rise, which might cause renters to further postpone any residential purchases. And aging baby boomers continue to downsize into rental units.
Fannie Mae is a bit more conservative in its estimates about multifamily growth over the next two years. But Kim Betancourt, Fannie’s Director of Economics, doesn’t expect any moderation to be long lasting.
“Considering that rent concessions have declined steadily for nearly seven straight years, and that their current level is now below 1%, it is probably only a question of ‘when’ and not ‘if’ concessions begin to rise again,” Betancourt says.
CoStar’s Affleck sees the “unprecedented propensity to rent, even among the most affluent” as “the chief risk to this cycle,” because higher rents will inevitably coax more renters to consider homeownership, especially if interest rates stay relatively low.
Related Stories
| Mar 22, 2011
Mayor Bloomberg unveils plans for New York City’s largest new affordable housing complex since the ’70s
Plans for Hunter’s Point South, the largest new affordable housing complex to be built in New York City since the 1970s, include new residences for 5,000 families, with more than 900 in this first phase. A development team consisting of Phipps Houses, Related Companies, and Monadnock Construction has been selected to build the residential portion of the first phase of the Queens waterfront complex, which includes two mixed-use buildings comprising more than 900 housing units and roughly 20,000 square feet of new retail space.
| Mar 17, 2011
Perkins Eastman launches The Green House prototype design package
Design and architecture firm Perkins Eastman is pleased to join The Green House project and NCB Capital Impact in announcing the launch of The Green House Prototype Design Package. The Prototype will help providers develop small home senior living communities with greater efficiency and cost savings—all to the standards of care developed by The Green House project.
| Mar 11, 2011
Renovation energizes retirement community in Massachusetts
The 12-year-old Edgewood Retirement Community in Andover, Mass., underwent a major 40,000-sf expansion and renovation that added 60 patient care beds in the long-term care unit, a new 17,000-sf, 40-bed cognitive impairment unit, and an 80-seat informal dining bistro.
| Mar 11, 2011
Mixed-income retirement community in Maryland based on holistic care
The Green House Residences at Stadium Place in Waverly, Md., is a five-story, 40,600-sf, mixed-income retirement community based on a holistic continuum of care concept developed by Dr. Bill Thomas. Each of the four residential floors houses a self-contained home for 12 residents that includes 12 bedrooms/baths organized around a common living/social area called the “hearth,” which includes a kitchen, living room with fireplace, and dining area.
| Mar 11, 2011
Texas A&M mixed-use community will focus on green living
HOK, Realty Appreciation, and Texas A&M University are working on the Urban Living Laboratory, a 1.2-million-sf mixed-use project owned by the university. The five-phase, live-work-play project will include offices, retail, multifamily apartments, and two hotels.
| Mar 1, 2011
How to make rentals more attractive as the American dream evolves, adapts
Roger K. Lewis, architect and professor emeritus of architecture at the University of Maryland, writes in the Washington Post about the rising market demand for rental housing and how Building Teams can make these properties a desirable choice for consumer, not just an economically prudent and necessary one.
| Feb 15, 2011
New Orleans' rebuilt public housing architecture gets mixed reviews
The architecture of New Orleans’ new public housing is awash with optimism about how urban-design will improve residents' lives—but the changes are based on the idealism of an earlier era that’s being erased and revised.
| Feb 11, 2011
Chicago high-rise mixes condos with classrooms for Art Institute students
The Legacy at Millennium Park is a 72-story, mixed-use complex that rises high above Chicago’s Michigan Avenue. The glass tower, designed by Solomon Cordwell Buenz, is mostly residential, but also includes 41,000 sf of classroom space for the School of the Art Institute of Chicago and another 7,400 sf of retail space. The building’s 355 one-, two-, three-, and four-bedroom condominiums range from 875 sf to 9,300 sf, and there are seven levels of parking. Sky patios on the 15th, 42nd, and 60th floors give owners outdoor access and views of Lake Michigan.
| Feb 11, 2011
Sustainable community center to serve Angelinos in need
Harbor Interfaith Services, a nonprofit serving the homeless and working poor in the Harbor Area and South Bay communities of Los Angeles, engaged Withee Malcolm Architects to design a new 15,000-sf family resource center. The architects, who are working pro bono for the initial phase, created a family-centered design that consolidates all programs into a single building. The new three-story space will house a resource center, food pantry, nursery and pre-school, and administrative offices, plus indoor and outdoor play spaces and underground parking. The building’s scale and setbacks will help it blend with its residential neighbors, while its low-flow fixtures, low-VOC and recycled materials, and energy-efficient mechanical equipment and appliances will help it earn LEED certification.
| Feb 11, 2011
Apartment complex caters to University of Minnesota students
Twin Cities firm Elness Swenson Graham Architects designed the new Stadium Village Flats, in the University of Minnesota’s East Bank Campus, with students in mind. The $30 million, six-story residential/retail complex will include 120 furnished apartments with fitness rooms and lounges on each floor. More than 5,000 sf of first-floor retail space and two levels of below-ground parking will complete the complex. Opus AE Group Inc., based in Minneapolis, will provide structural engineering services.
