What Does 2018 Hold for the Midwest Multifamily Market? BAM Looks at Good News in the New Year
With the holidays upon us and the new year only weeks away, many wonder what 2018 will look like for the multifamily market. We found a recent article online in the National Real Estate Investor which predicts a healthy year ahead for the Midwest multifamily market. BAM looked into what sets the Midwest apart and what builders and investors are doing to keep momentum going for a strong new year.
The good news for every market is that across the country, apartment demand is predicted to rise steadily due to a variety of factors. For instance, continued immigration as well as delayed home ownership will necessitate the construction of an estimated 4.6 million new units by 2030, according to the NREI article data. All markets will benefit to some degree from the ongoing and increased rental demand over the next decade, but the Midwest specifically is poised to have a strong 2018.
The Midwest isn't as flashy as more well-known coastal markets, but there are plenty of benefits to be had in these stable, reliable areas. In the heartland, cap rates average 100 basis points higher than coastal regions: meaning higher yields, immediate cash flow, and a region which is more available to private investors – always a positive. Perhaps the easiest benefit to illustrate is that the Midwest will also more easily support rental increases compared to the coast. The NREI article used the example of a 5% increase in Kansas City vs San Francisco: that would boil down to $50 a month in KC compared to almost $185 a month in the Bay City! Clearly, if we're looking at that monthly average rent example, the Midwest could definitely allow for more rental rate flexibility compared to a tighter rental rate on the coast.
In an article on MultifamilyBiz.com it shows many developers are looking to sustain momentum with the Midwest's success in the multifamily market. According to the article, properties with their own space are the ones which will succeed in a “crowded market.” Many properties are also offering a wide variety of amenities geared toward attracting tenants, focusing on important features like state-of-the-art fitness centers and integrated technology within the property. Storage is always a sell-point, and many developers are finding innovative ways to add storage to properties to entice renters who are downsizing after years of home-ownership.
Another way that the multifamily industry is itself embracing technology is to utilize virtual reality; tenants will be able to “see” space and features before signing a lease. VR is expected to become more popular in 2018 as a way to generate pre-lease sales. The article, which focused on the Chicago market, also mentioned that the multifamily industry was committed to finding creative ways to work within the low-income spectrum of the industry. With the tax laws still in limbo and many regulations possibly changing, the industry will need to be flexible in managing their lower-income properties and the industry is responding to ensure needs are met.
With property managers and developers drawing new tenants with innovative technology and appealing amenities, and positive cap rates and rental rate potential, the Midwest multifamily market appears set up for a positive new year in 2018. The Midwest may not receive as much press as its coastal cousins, but in the multifamily market the heartland performance remains strong and steady.