The market outlook for Multifamily “continues to be positive,” and is expected to remain strong “for several more years,” according to Freddie Mac’s latest projections.
The multifamily rental market is in its sixth year of robust growth. And there are several reasons for optimism about the sector’s near-term future, says Steve Guggenmos, an economist and Senior Director of Multifamily Investments and Research with Freddie Mac. For one thing, “growing demand continues to put pressure on multifamily occupancy rates and rent growth.” Occupancy rate in the second quarter of this year, at 4.2%, fell to a 14-year low. Meanwhile, rent growth expanded by 3.7%.
The supply side “is just starting to catch up” with demand, and in the second quarter hit the highest level of completions—an annualized 285,000—since the 1980s. Newsday reported last week that demand for multifamily housing on Long Island, N.Y., pushed the number of local construction jobs—80,500 in August—to its highest level in at least a quarter century.
While completions nationwide could remain elevated over the next few years, demand should be able to absorb most of that supply, keeping vacancy rates down.
The multifamily sector is definitely benefiting from an improving economy that has released pent-up demand, says Guggenmos. Labor markets are growing (the unemployment rate stood at 5.1% in September, according to the Bureau of Labor Statistics). And Freddie expects the country to add more than 2.5 million new jobs in 2015. However, full employment “remains elusive,” and the one negative has been wage growth, which only now is starting to pick up but still lags rent growth.
Since the end of 2014, household formations have continued to rise, and the majority of those formations chose rental housing. Freddie expects that pattern to continue, for three reasons: the economy will get even better, Millennials are moving into adulthood, and positive net migration.
Guggenmos also cites the “strong appetite” among investors for multifamily properties, “especially in major markets.” And he expects origination volumes to remain on the upswing into 2016 because of favorable loan rates, property cash flows, evaluations, and increasing loan maturities.
Freddie foresees rent growth moderating to 2.9% in 2015, and to keep retreating to 2.4% in 2016, as vacancies (which it forecasts to inch up nationally to 4.9% in 2016) and rents converge to “a historic norm.” Freddie sees only three metros—Washington D.C., Austin, and Norfolk, Va.—where vacancy rates might be “meaningfully” higher than the long-run average in 2016. Conversely, Freddie sees Houston’s multifamily market is among those that are at the greatest risk of economic impact from low oil prices.
Related Stories
MFPRO+ New Projects | Mar 18, 2024
Luxury apartments in New York restore and renovate a century-old residential building
COOKFOX Architects has completed a luxury apartment building at 378 West End Avenue in New York City. The project restored and renovated the original residence built in 1915, while extending a new structure east on West 78th Street.
Multifamily Housing | Mar 18, 2024
YWCA building in Boston’s Back Bay converted into 210 affordable rental apartments
Renovation of YWCA at 140 Clarendon Street will serve 111 previously unhoused families and individuals.
Adaptive Reuse | Mar 15, 2024
San Francisco voters approve tax break for office-to-residential conversions
San Francisco voters recently approved a ballot measure to offer tax breaks to developers who convert commercial buildings to residential use. The tax break applies to conversions of up to 5 million sf of commercial space through 2030.
Apartments | Mar 13, 2024
A landscaped canyon runs through this luxury apartment development in Denver
Set to open in April, One River North is a 16-story, 187-unit luxury apartment building with private, open-air terraces located in Denver’s RiNo arts district. Biophilic design plays a central role throughout the building, allowing residents to connect with nature and providing a distinctive living experience.
Affordable Housing | Mar 12, 2024
An all-electric affordable housing project in Southern California offers 48 apartments plus community spaces
In Santa Monica, Calif., Brunson Terrace is an all-electric, 100% affordable housing project that’s over eight times more energy efficient than similar buildings, according to architect Brooks + Scarpa. Located across the street from Santa Monica College, the net zero building has been certified LEED Platinum.
MFPRO+ News | Mar 12, 2024
Multifamily housing starts and permitting activity drop 10% year-over-year
The past year saw over 1.4 million new homes added to the national housing inventory. Despite the 4% growth in units, both the number of new homes under construction and the number of permits dropped year-over-year.
Affordable Housing | Mar 11, 2024
Los Angeles’s streamlined approval policies leading to boom in affordable housing plans
Since December 2022, Los Angeles’s planning department has received plans for more than 13,770 affordable units. The number of units put in the approval pipeline in roughly one year is just below the total number of affordable units approved in Los Angeles in 2020, 2021, and 2022 combined.
MFPRO+ Research | Mar 6, 2024
Top 10 trends in senior living facilities for 2024
The 65-and-over population is growing faster than any other age group. Architects, engineers, and contractors are coming up with creative senior housing solutions to better serve this burgeoning cohort.
Multifamily Housing | Mar 4, 2024
Single-family rentals continue to grow in BTR communities
Single-family rentals are continuing to grow in built-to-rent communities. Both rent and occupancy growth have been strong in recent months while remaining a financially viable option for renters.
MFPRO+ News | Mar 2, 2024
Job gains boost Yardi Matrix National Rent Forecast for 2024
Multifamily asking rents broke the five-month streak of sequential average declines in January, rising 0.07 percent, shows a new special report from Yardi Matrix.