Examining the Midyear Market: Despite Naysayers, Multifamily Still Thriving
As the white-hot apartment market continued to bustle along at the midpoint of the decade, many in the industry were wary of a potential cooling-off period. After all, the market couldn’t continue to flourish at such a high level, could it?
Conventional wisdom suggested that supply would eventually catch up to demand, inevitably causing apartment fundamentals to reverse course. Many suggested a gloomy multifamily outlook each of the past several years, but the downturn has been much like Y2K at the turn of the century – it hasn’t arrived.
Sure, rent growth has scaled back from its meteoric pace during the peak of the cycle, but rents are still growing in most major markets and multifamily fundamentals remain strong entering the latter half of 2019. In fact, as the current cycle now begins its second decade, the inevitable downturn appears nowhere in sight.
According to research by National Real Estate Investor, investors are even more bullish on the multifamily sector after signs of caution existed in 2018. According to the study, 84.5 percent of multifamily investors indicated they’d either buy or hold on to multifamily properties in the next 12 months while only 15.5 percent were poised to sell.
Likewise, the National Multifamily Housing Council’s most recent quarterly survey lauded “the enduring strength of the multifamily market” as three of the survey’s four indexes arrived above the breakeven level of 50. The one exception, the Sales Volume Index, was just below the breakeven point at 48.
A slew of additional data tells a similar story, which begs the question as to how the multifamily sector as been able to flourish for such an extended period. Here are some of the potential reasons why:
Increasing renter demographic: As apartment construction ramped up over the past few years, it appeared inevitable that supply would eventually surpass demand. Naturally, that would lead to higher vacancy rates, plateauing or declining rents and more concessions. But renting has become more attractive on a national basis over the past several years, leading to a larger pool of prospects. While younger generations predictably continue to rent in high volume, some older generations are doing so more frequently. Many Baby Boomers, for instance, have opted to cash out their homes in favor of the simplicity of apartment living.
Dedicated focus to the living experience: Apartment operators aren’t just selling four walls anymore. Perhaps spurred by the hypercompetitive market of the last decade, the industry has made a pronounced focus on marketing an entire living experience to prospective residents rather than just a home. This increased focus has made apartment living more appealing, even a luxury in some cases, which has helped the market outpace its original projections.
Multifamily has become tech-savvy: In the past, multifamily (perhaps fairly) had a reputation as a technical laggard. But the industry has become increasingly innovative, which has made it more appealing in the digital age. Residents now expect constant connectivity, intuitive resident portals, smart-home features and work-from-capabilities. To a large degree, the industry has delivered and continues to keep pace. The tech-savvy approach has also assisted in attracting and retaining high-level associates, which has helped fill communities, as well.
This is not to imply that the market won’t eventually reach a challenging point and soften to some degree. But judging by recent indications, those awaiting a multifamily downturn might want to find something else to do to occupy their spare time.