Has Multifamily Peaked? No! Says Colliers
In December 2016, Colliers International released its multifamily report entitled "Multifamily Spotlight" which assesses the overall health of the multifamily market and also takes a deeper dive into some of the largest 20 Metro Statistical Areas (MSAs). Some key takeaways from the report are -
Overall outlook:
Multifamily has been among the fastest growing asset classes since the recession and Colliers believes there is further upside potential driven by social and cultural trends such as urbanization, falling home-ownership, late marriage, and lower birth rates.
Effective rents have risen 42.4% between Q1 2010 and Q3 2016 and occupancy rates have been at historical highs.
Millennials in the prime renter age (20-34 years) are expected to peak around 2025 creating strong demand for current and future apartment owners.
According to Colliers, although rent and valuation growth of the past few years will temper to more normal levels, demand for multifamily will remain strong while supply will be kept in check by capital markets.
Some concerns:
GSE's - Fannie Mae and Freddie Mac have played an out-sized role in financing multifamily transactions since the recessions and any restructuring of these GSEs can negatively impact the sector.
Low GDP growth rates, which have been a concern in the last few quarters, can seriously impact the sector especially if seven years of strong growth lead to the "inevitable" recession.
Supply concentration in the luxury/Class-A segment can lead to rent growth sputtering - especially in the luxury segment and in metros with high concentration of new Class-A supply.
Conclusion:
The report acknowledges that the strongest returns in the cycle are a thing of the past and going forward, the apartment sector will return to more normal growth rates with economic, cultural, and demographic trends providing significant tailwinds to investors.
The report can be accessed here.
