That’s the message from Marcus & Millichap’s newly released 2016 US Multifamily Investment Report. (Website registration required.)
Coming off a year of what co-authors John Sebree and John Chang (multi-housing group national director and research first VP, respectively) call rugged resilience, the economy is fueling a 2015-like expansion of the market, marked by “falling unemployment, exceptional demographic trends and modest but consistent wage growth.”
There are hurdles ahead, of course, but not enough to derail that movement. “Investor demand for apartments appears virtually insatiable as numerous favorable demand drivers align with readily available capital,” the two Johns write. “Compressed yields and intensifying construction levels in primary markets have pushed investors to consider a wider array of investment options.”
This appetite of course is set against a backdrop of inflationary risk, which, “could push the Federal Reserve to tighten monetary policy as it cautiously balances generally positive performance indicators against mostly internationally spawned headwinds.” Not the least of these were China’s currency devaluation and Wall Street’s teeth-chattering reaction to it. “The restraints of a slowing global economy could impair U.S. economic momentum, softening job creation.”
Then there’s the threat of overbuilding as a reaction to the above-mentioned insatiable demand. “Last year’s 250,000 new units were met by ample absorption that tightened vacancy rates on a national level,” says the M&M duo. “Demand in the coming year will be hard pressed to absorb the 285,000 units scheduled for completion.”
But in this potential bad news comes good as well, and Marcus reports that nearly half of these new units will be concentrated in just 10 markets, potentially threatening to them but good for the bulk of the US as those not in the top 10 remain undersupplied. In all, you can expect most markets to continue to grow, “and the apartment sector will be buoyed by more rental-favoring millennials coming of age and empty nesters motivated by lifestyle changes.” Go, Millennials!
About the Author
John Salustri is one of the nation’s most respected writers in the field of Commercial Real Estate. A multiple award winner for excellence in journalism, John is the founding editor of GlobeSt.com, the nation’s premier news and information site for the commercial real estate industry. Today John is a freelance writer and editor, focusing on helping companies boost their industry presence through enhanced web and print content.