June 17, 2018

Multifamily Sector Dodges Warnings

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Multifamily Sector Dodges Warnings

The multifamily market continues to post strong gains, despite warnings from analysts as early as 2011 saying that the sector was heading for a cool-down from competition over recovering home prices, The Wall Street Journal reports. As mortgage lending continues to be constrained in the single-family housing market, the multifamily market and number of renters continues to soar.

Nationally, rental apartment values are up 14 percent from 2007, according to the Green Street Advisors index, which tracks the performance of listed rental-apartment landlords. Rents and occupancy rates are pressing upward too. In the first quarter, rents rose 0.6 percent – up 13 percent since rents began their upswing in 2009, according to Reis Inc., a real estate data firm. Vacancies have dropped to 4 percent.

Surveying the Multifamily Scene

One of the strongest rental performers lately: Denver. The city is benefiting from a high-tech and startup scene that has helped press its job growth 2.8 percent in the past year, higher than the 1.7 percent growth nationwide. Its growing job market has promise for its rental market.

For the past five years, Denver's rents have been on the rise, increasing 20 percent since peak 2007 levels. Still, landlords realize that while the market is hot, they can’t expect to get 10 percent rent increases every year, says Dan Fasulo, managing director of Real Capital.

Also, some analysts worry that oversupply in upscale housing will eventually catch up to the market. As such, some developers are refocusing on adding “workforce housing,” in which monthly rents range from $1.20 to $1.35 a square foot. Workforce housing has less risk than upscale apartments since there is less supply. “If the overall economy does improve, you’ll basically reap the benefits,” says Mike Moran, who leads Allstate’s real estate investment group.

Source: “Apartment Market Shows Staying Power,” The Wall Street Journal (June 24, 2014)