May 26, 2018

Trends Show Outlook for Mulitfamily Sector Bright

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Trends Show Outlook for Mulitfamily Sector Bright

The multifamily market continues to outperform historical trends, with vacancy rates at a 13-year low, strong demand for new units being built, and a large number of young adult renters and potential renters, Freddie Mac reports in its mid-year multifamily outlook.

Inside the Multifamily Sector:

"The multifamily market will continue to be favorable into 2015 as multifamily fundamentals move towards historical norms,” says Steve Guggenmos, Freddie Mac’s senior director of multifamily investment and research. “The strong demand in this sector is partly due to employment gains, particularly among young adults."

The supply of new multifamily units is being absorbed by the high demand for multifamily units. The sector is expected to remain strong over the next two years before converging more toward historical averages, according to Freddie’s report.

Due to the Great Recession, an estimated 3.9 million potential households weren't formed. Young adults accounted for nearly 75 percent of those pent-up households. Over the next decade, based on demographic trends, an estimated 440,000 multifamily units will be needed each year to meet the growing demand, Freddie Mac’s report notes.

"Absorption of multifamily units was very strong in the beginning of 2014,” Guggenmos says. “As a result, vacancy rates are at their lowest level in 13 years. By the end of 2014, we expect vacancy rates to turn the corner as new supply is delivered to the market."

Guggenmos says that over the long-run the demand for multifamily units will likely be stronger than pre-recession levels.

"As the economy improves and most pent-up demand releases, demographic trends will be disproportionally favorable for the multifamily sector due to the young adults comprising a large share of suppressed household formation," Guggenmos says.

Source: Freddie Mac