Recently, a report published by Yardi Matrix detailed the current multifamily industry outlook for the winter of 2019 as well as projections for later this year. We delve into the report and note what the experts see as encouraging as well as some warnings for the market this year, in today’s edition of the BAM blog…
Rent & Rental Demand Growth Expected
Supported in part by both young and older renters, rental demand growth is anticipated to continue in 2019. The Yardi report notes that younger residents are remaining renters longer, while older Americans may become inclined to rent to avoid expensive property taxes, etc. Rent growth, while having slowed, is also expected to continue this year. Yardi quotes an expected rent growth rate of 2.8% which makes 2019 another year of increased rent. Markets like Las Vegas, Orlando, and Phoenix are where rents will see the highest growth, according to Yardi. These markets have demographic and employment growth above average, according to the report.
Multifamily Development Continues
The Yardi report says that multifamily development will remain strong in the coming year. According to Yardi, they expect delivery of about 300,000 units in 2019 – which is the fourth year in a row for delivery in this range, per their stats. The report notes that factors like the high cost of land and the shortage of skilled labor have affected supply growth. One interesting point: multifamily development accounts for the majority of housing development. According to the report, single-family construction is sluggish mainly because it’s tough for developers to build at the entry-level price point.
The Yardi report does note that after a decade of the economic cycle, a sense of anxiety has developed. The report says that property yields have probably “bottomed out” and we’re seeing mortgage originations slow down, especially in out-of-favor asset classes; concerns over rising interest rates and slowing economic growth are the main factors. As we wrote in our blog, Fed Chair Jerome Powell shared concerns about the Chinese government’s economy slowing and our previous blog noted that hedge-fund founder and author Ray Dalio shared those concerns, warning that the integrated world-economy could adversely affect our own.
Demand High for Multifamily Deals
According to the Yardi report, while the volume of loans for other property types (such as health care, office, retail) declined, the same couldn’t be said for multifamily properties. The volume of loans for multifamily properties increased by 19%, as did industrial property loan volume in the same quarter, according to Yardi. As the report notes, demand for these types of properties is expected to stay strong regardless of the economy’s performance.