January 22, 2019
The prolonged multifamily cycle looks to be strong for another year, as annual rent growth is likely to increase, while demand for apartment units will continue robust among investors and renters. In short, according to Yardi Matrix’s “U.S. Multifamily Outlook, Winter 2019,” the coming year should be another good one for the industry. “Demand is expected to stay healthy, as long as job growth remains positive, and young adults and retirees choose apartments,” the report noted.
The Yardi analysts also forecast the following.
- The coming year should be marked with moderate rent increases from 2.5%-3% nationally. The South and West regions, experiencing strong in-migration and job growth, will lead the way.
- Approximately 300,000 units will come online in 2019, marking the fourth straight year at that particular supply level. “Though rents will be tested in some metros by a spate of deliveries,” Yardi analysts commented, “recent experience has shown that supply will be absorbed when demand is there.”
- Investors still like multifamily, due to its perception as a safer asset type. The Yardi report pointed out that, as the economic cycle continues aging, a larger portion of CRE dollars are headed toward apartments and industrial product.
This is not to suggest, however, that the report is all good news. The Yardi analysts warned that, while capital for the sector remains firm, “a sense of nervousness is developing.” Specifically, property yields have likely bottomed out, while concerns about increasing interest rates and weaker economic growth led to a slowdown in commercial mortgage originations.
Additionally, while lenders are competing on pricing, they are “also discriminating among property types to make their portfolios as recession-proof as possible.”
Finally, from an economic standpoint, the Yardi analysts believe that 2019 will mean slower growth and softer fundamentals, even with an overall healthy economy. Still, trade tensions and a continuing flattening of the yield curve are cause for concern among investors.
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