There has been a lot of talk about the multifamily market and when a bubble could possibly burst with this hot commercial real estate sector. Well, that certainly hasn’t happened yet, and it doesn’t look like it will take place in the near future.
CoStar says that multifamily construction is increasing throughout this year and the next. Obviously, with new product on the market, it is going to boost vacancy rates, which are inching up across the country.
But rental rates are expected to increase 4.5 percent for class A apartment properties and 5.1 percent for lower-class assets this year. Meanwhile, vacancy rates are forecast to go up from 4.2 percent to 4.8 percent due to the 210,000 new rental units coming on the market.
Though the net growth is on the upswing, it is lower than the 5.9 percent multifamily rent increase that took place last year as reported last year by Pierce-Eislen.
Still, the new supply that is coming online shows that demand for multifamily is strong, given the fact that the single-family housing market is not having a consistent improvement.
The ironic thing is that we have seen a major boost in the U.S. economy. GDP growth in the United States might not have measured up to what some had thought, but foreign investment in commercial real estate assets has increased dramatically.
The top commercial real estate sector in the country since the recession and beyond, as far as investor perception goes, is undoubtedly multifamily. So it stands to reason that most buyers would vie for those assets.
Of course, the metro areas of Seattle and Charlotte, N.C., for example, have different overall economies that make them attractive for buyers, but the one thing they have in common are strong multifamily markets.
Regardless of the metro area, though, some are stronger than others, multifamily is still strong and hitting all cylinders in the commercial real estate industry. Looking ahead, there is no reason to think that this will change any time soon. We look forward to seeing how the apartment picture focuses for the rest of the year.
What are your thoughts on the multifamily market? Do you think its momentum can continue?