With the New Year fast approaching, it’s time once again to turn to prognosticators in the industry and try to see what the next year will hold for multifamily real estate. The Urban Land Institute recently released their annual “Emerging Trends Report” which could shed light on what might be on the horizon for industry players in 2019. The report surveys industry experts and insiders each year for their opinions on market trends; it then distills results to gain insight into future real estate expectations. To see the detailed report in its entirety, click here. We look at this latest report and what it indicates for our area in today’s issue of the BAM Blog…
Multifamily Faces a Known Challenge
Some of the report findings, we’ve mentioned before as well: the continued shortage in affordable housing, for one, won’t be much of a surprise to anyone in the industry. The report notes that by some estimates, up to 325,000 new units are needed a year; but, as we’ve mentioned many times, the majority of delivered inventory remains high-end, luxury property. Some cities appear to be attempting to address the affordable housing shortage by tackling the most immediate problem: supply. The report mentions that certain areas are working to loosen restrictions and begin building to add to affordable housing.
Indy Has a Positive Investment & Economic Outlook
The report noted that survey respondents had a favorable view of the Circle City when it came to real estate investment and the economic outlook. According to the numbers, for Investment Prospects: Indianapolis scored a 3.71 on a scale where 5 was excellent and 4 was good, with 3 being fair. The score was similar or above average with nearby markets. Indy was also singled out in the report in the Midwest for population growth expected to be higher than the national average, as well as continued low business costs. Survey participants cited Market Strengths for our area as: Indiana’s stable credit rating, appealing yields thanks to relative affordability, and less volatility than coastal counterparts. The report names Indy as more of a “safe bet” for investors.
Next Year Indicates Prudence, Caution
The report cites the historical effects of the Great Recession as contributing to the rise of both necessity-renters as well as higher-end properties and those who choose to rent them. The questions asked by the report include if the industry can maintain its lure for choice-renters, and if they can be financially successful improving, operating, and managing properties for the bigger section of necessity-renters. To that end, the report cites the answer in three key areas: technology, local overreach, and determining access to necessity- or choice-renters. Survey respondents show their own caution in answering multifamily buy/hold/sell questions. The majority of participants (50.0%) felt affordable housing should be held, with 33.7% advising to buy, and only 16.3 advising to sell. On the other hand, the majority of participants felt that the time might be right to sell high-income multifamily property. For moderate-income multifamily property, the majority of survey participants felt now may be a good time to buy.
The BAM Bottom Line: Indianapolis is in a good spot economically, with continued low business costs and cost-of-living. Our own strategy is to avoid investing in Class A (luxury) properties as well as subsidized housing, but to look carefully and perform due diligence in finding workforce housing in desirable areas with good schools, access to transportation, and which are developing.