Why could these key factors keep elevated multifamily asset prices and rents in the future despite any economic circumstances?

Dana on August 22, 2022

Why could these key factors keep elevated multifamily asset prices and rents in the future despite any economic circumstances?

 

Multifamily offers investors appealing yields that may be challenging to get elsewhere. Demand is outpacing supply in the noteworthy industry, giving rental operators more negotiating power.

 

A number of factors, such as sticker shock from potential homebuyers priced out of the market, labor shortages, supply chain issues, and rising material costs that are delaying the construction of new multifamily products, and robust migration growth, are to blame for the imbalance between supply and demand.

During the pandemic, multifamily properties have grown in popularity among investors, and for a good reason. For the right investors, these assets typically have low risk and high reward, giving them the chance to maximize their investment capital.

 

Which are the key factors could keep elevated multifamily asset prices and rents in the future despite any economic circumstances?

 

Explosive rent growth in multifamily properties

In the past 18 months, the multifamily market fundamentals swiftly recovered as investors were drawn to the industry’s rapid rent growth, low vacancy rates, soaring absorption, and positive migration patterns.

Early in the pandemic, the multifamily rental market suffered, but it has since bounced back and is presently booming in most metros.

Building on the significant economic activity in the past year, the favorable outlook for multifamily appears to remain extremely positive due to immense supply shortages and shifting demographic and migration trends.

Class B, C, and workforce housing are extremely scarce, which presents a huge opportunity for innovative developers and real estate investors to provide development and rehabbing services.

Extremely strong demand for multifamily in the past 18 months is very likely to continue

Certain groups and types of buyers have been disproportionately impacted by the housing market’s imbalanced supply and demand, whilst higher-income homebuyers and investors have been able to capture more of the market, often even before a listing becomes publicly available.

Urban and suburban markets around the country are experiencing it, and the trend doesn’t seem to be slowing down anytime soon.

The low vacancy rate is partially a result of the scarcity of housing options. Normally, buyers would move out of rentals to make place for new tenants to move in, but the intense demand for property forced many people—especially first-time buyers—out of the market.

While such, many households are staying put in their rental homes, even as rents are raised up to unprecedented levels.

Due to investors placing large bets on the acquisition of rental properties, demand for multifamily properties has increased. These properties offer quicker scaling and bigger monthly cash flows, in addition to being sometimes simpler to finance.

The rate of development is probably going to pick up, but through 2022, most major markets are predicted to remain undersupplied, keeping vacancy rates close to cyclical lows. Additional rent increases may be possible due to the tight market, although the rate of growth will likely be slower than in the past 18 months.

Rising number of renewed leases in anticipation of future higher rents

The soft multifamily activity at the onset of the pandemic is no longer an issue. This renewal tendency, like the rise in rental demand, can be largely attributed to a lack of available inventory.

Renters are staying put in their apartments as highlighted by market trends that lease renewal rates are now outpacing new lease rates. Given that concerns with vacancy and rental turnover might be quite expensive, this is a big benefit for investors.

Rising competition from local and global investors

Competition is heating up from all sides. International investors have turned their focus to the multifamily housing sector. Since the beginning of the pandemic, investors from all over the world have been increasing their allocations to multifamily housing.

 

The cost of renting has remained stable despite the recent economic downturn, and investors are now competing for larger part of the pie.

The exploding multifamily demand is unmet by the limited supply

Consistently high rental demand versus supply is another factor boosting multifamily investments.

 

Construction of new housing, whether multifamily or otherwise, has been driven into overdrive as a result of the housing scarcity, with new homes being built in suburban and metropolitan regions at an all-time high rate. However, the ROI for investors in the multifamily sector is not anticipated to be adversely affected by the new building activity.

 

Market data and trends indicate that there will be more than sufficient multifamily demand to go around for investors to maintain a good occupancy rate at multifamily properties for the foreseeable future.

 

Multiple variables, including demographic changes, low homeownership rates, zoning laws, and the underbuilding of non-luxury multifamily units in working-class regions, contribute to the continuous supply/demand imbalance in multifamily markets. Renters are unlikely to get considerable respite anytime soon due to the extreme demand and limited housing options.

 

Although a few potential economic challenges due to the monetary tightening and short-term headwinds lie ahead, the multifamily market is showcasing once again its resilience and strength to withstand any economic conditions and continue to serve as the best real estate investment leg in the following years.

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About Adivo Construction

We are a national general contractor with over 50 years of combined construction expertise specializing in the value-add improvements of apartment communities.

Our mission is to assist our clients in finding the right balance between capital expenditure and appreciation potential by designing and executing customized renovation programs that are focused on increasing cash flow return and overall return on investment.

We have completed over 100 repositioning projects for publicly traded and privately held domestic and foreign companies in states such as Florida, Texas, Kentucky, Oklahoma, Georgia, South Carolina, Utah, North Carolina, Tennessee, Indiana, Michigan, Missouri, Arkansas, Ohio, Arizona, Nebraska, and Kansas.

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