Jeff Coyne
Director, GRS | Corteq
(510) 962-9534
[email protected]
It doesn’t look like there will be a downturn in the multifamily sector of commercial real estate any time soon, according to recent reports.
On the consumer front, rising housing prices in many metro areas will continue to ensure a healthy share of renters, according to a recent Marcus & Millichap report. Despite a year in which the most new-apartment units have come online in the last 25 years, 365,000 total in 2017, vacancy rates were flat and below the long-term average of 5.7 percent.
There are reportedly 335,000 new units scheduled to deliver this year. 80,000 of them are Denver; Portland, Ore.; San Jose; and Texas’ major four cities, which are all areas where housing prices have skyrocketed at least 50 percent since the last economic peak.
Meanwhile, a recent National Real Estate Investor (NREI) report said that there still is so much investor demand for multifamily assets that potential buyers are increasingly looking to secondary markets, as cap rates are at historic lows (under six percent) and are not expected to rise any time soon, according to Real Capital Analytics.
But that hasn’t deterred overall transactions all that much. In January, there were reportedly $9.9 billion in multifamily purchases followed by $8.1 billion in February. That puts 2018, to date, on pace with last year’s total volume, which totaled $152.7 billion.
Meanwhile, fears of apartment overbuilding have not yet been realized. NREI said that construction delays have tempered the amount of product to hit the market and apartment buildings, on average, are taking an additional six months to be built. Additional concerns over rising constructions costs, labor shortages, and possible steel tariffs could stall or cancel planned developments.
Capitalizing on the hot market, KBS Legacy Partners Apartment REIT just unloaded an 11-asset portfolio for over $480 million to several different investors. Most assets are located in suburban markets of large metro areas.
Multifamily rent growth has continued through this year’s first quarter. Albeit, at a slower pace than previous periods in the recent past, rising 2.3 percent, compared to between 2.6 percent and 2.9 percent throughout 2017, according to a Bisnow report on RealPage data. Vacancy has also slightly increased, to 94.5% percent in March from 95 percent during the same year-ago period. The two largest metro areas in terms of rent growth are Las Vegas and Orlando, both at six percent, while Austin, Texas, was the only major city surveyed that saw a drop, falling 0.7 percent.
But if a lack of significant wage growth, coupled with an increase in housing prices and low supply, the multifamily sector looks as though it will continue to strong run for the foreseeable future.
About GRS Group:
GRS Group is a leading provider of commercial real estate (“CRE”) services worldwide. With offices across the United States, Europe, and affiliates around the globe, GRS Group provides local market knowledge with a global perspective for institutional real estate investors, occupiers and lenders worldwide. The GRS Group team has evaluated and advised on over $1 trillion in CRE transactions.