“Stable.” That’s the one word that encapsulates the anticipated state of the multifamily sector this year, according to Greg Willett, chief economist at RealPage. That was also the sentiment expressed by other industry experts as well, when asked for their forecasts for the upcoming year.
- Class A in urban cores and suburban settings remain attractive
- Vacancies are rising, especially in luxury apartment buildings
- Builders are having difficulty finding appropriately zoned land for construction starts
- Houston, Manhattan, San Jose, Orlando, and Philadelphia will be the five top-performing metros for real estate investors in 2018
Class-A assets will remain attractive – In most markets, this sub-sector of multifamily will continue to be competitive, Willett notes, particularly in urban core and suburban settings. However, vacancy is also trending higher at luxury apartment buildings, which has not been the case for some time.
New deliveries may carry over into 2018 – “I think deliveries have been extended beyond what most of us expected,” says Mark Culwell, managing director at Transwestern Development Company. One reason for these extensions is a shortage of construction laborers, a challenge that has been exacerbated by the recovery of the single-family home segment, Culwell adds.
Both vacancies and rents may continue to inch up – Demand has diminished slightly while supply has picked up—and vacancy rates have started to reflect that last year, says Peter Muoio, chief economist at Ten-X.
“We think this trend will continue,” Muoio says. As for rent, last year they grew by 2.5 percent overall, Willett says. “We think that the 2018 number is between 2.5 and 3.0 percent, so again, not a drastic shift in momentum,” he notes.
New product starts may moderate – Willett says construction starts is the biggest wildcard for this year. There’s a “general perception that we are going to have some slowdown, and we agree,” he notes. “It’s become more of a challenge in urban markets to find those sites to put into production,” Culwell says.
The “flight to quality” will continue – Banks, private equity shops and other lenders are using more scrutiny when examining deals, which means fewer multifamily deals are getting done even though demand for rental units has not lessened, says J. David Heller, CEO of development firm The NRP Group.
The five top metros in 2018 – RealPage anticipates Houston, Manhattan, Orlando, Philadelphia and San Jose will five best performing metros this year. Meanwhile, the firm downgraded the anticipated performances of Austin, Texas, Brooklyn, N.Y., Charlotte, N.C., Dallas and Seattle.
The affordable housing gap will not close – This means that private investors can step up to provide units for low- to moderate-income families, as nothing is expected to change this year, says Ken Munkacy, senior managing director of Kingbird Properties.