Outlook for multifamily housing industry looks bright
There are some truly exciting multifamily housing trends unfolding, especially as we get back to more normal economic conditions. At the same time, like so many other areas of our lives, there are plenty of new approaches demanded by the experiences we have all faced for nearly two years during the global pandemic.
Focusing directly on our industry shows that there are many aspects to a growing interest in multifamily properties across the country, something FOURMIDABLE is paying close attention to as we work with new owners and potential buyers on how to handle their property management needs.
The uptick in the sale of multifamily properties has taken on a strong urgency this year, and, more importantly, there is a fresh wave of interest by younger buyers, investors and owners who want to find ways to remake the multifamily community experience.
Let’s start with some of the data behind what we’re seeing. According to CBRE (one of the world’s largest commercial real estate services and investment firms), with strong market conditions, multifamily investment volume is expected to reach about $148 billion this year. CBRE says that is lower than 2019’s record level of $191 billion but a 33% gain over the 2020 estimates of $111 billion.
A 2021 mid-year Freddie Mac report says that the changing migration patterns and housing preferences have led to changes in multifamily demand and renewal rates. While demand fell throughout 2020, the report noted a rebound in the fourth quarter which “has picked up speed so far this year.” The report referenced that RealPage saw second quarter demand this year of nearly 500,000 units (annualized), the highest quarterly level in RealPage’s data set, which goes back to 2000.
The same Freddie Mac report said that as economic conditions have improved, so have expectations for the apartment market in 2021. “We project the vacancy rate for 2021 to decrease 40 bps to 5.0%. Rental rates are expected to increase 2.5% and gross income is projected to grow 2.9%. In 2021, we expect over 90% of markets to achieve positive rent growth.”
This is some pretty heady stuff. So, what’s driving this solid growth for multifamily housing opportunities? According to a recent article in Forbes magazine by Veena Jetti, the founder of Vive Funds, there are five main factors. While I’m not going to go into great detail with each, let me share these basic thoughts.
Jetti says the trends are built around political decisions being made (stimulus packages, rent moratoriums and more); “pandemic management” or getting the country back to good physical and economic health; supply-demand balance for all forms of housing from multifamily to single residential; the “millennial effect” led by those younger people who forgo home ownership for renting options; and the “Gig” economy that focuses on greater work from home options, more work-life balance and career flexibility based on “project” directed job paths versus “permanency.”
For FOURMIDABLE, the sale of a multifamily housing property to a new owner lends itself to great opportunities as owners figure out property management challenges and seek an experienced partner, especially when the new owners are trending younger (40s) and have new ideas about multifamily housing.
With younger owners comes new opportunities to adapt and reinvent the multifamily community experience. This is as powerful trend as economic numbers must be understood for continued success.
Some of the multifamily housing thought leaders I reviewed, who are looking at trends in this area, are focused on many of the following priorities: more and better pet-friendly options; greater use of technology as a top-end “amenity;” a renewed focus on technology when it comes to better and safer interactions between residents, management and the community; and a growing recognition of creating better options for those who work from home, these often focused on technology but also in smart design or renovation of housing units.
Besides the technology focus, you’ll note that some of these thoughts are really about the residents – from pet-friendly options to better living design that connects life at home with working from where we live. In many ways, this points to the new normal we all face in our industry, trying to find ways to maintain our success but also plan for future success.
As our industry re-emerges from the pandemic, we clearly are on a strong economic footing, and there are plenty of exciting and hopeful trends for redeveloping, reinventing and reshaping our communities. How we manage, how we meet the needs of residents and how well we offer investment opportunities for those interested in getting involved in the multifamily housing arena is changing. And I, for one, am excited.