Marcus & Millichap Report Predicts Strongest Year Yet for Rental Market

By Jessica Fiur, News Editor

Encino, Calif.—2011 proved to be a good year for multifamily, according to the 2012 National Apartment Report, released by Marcus & Millichap Real Estate Investment Services. According to the report, foreclosures in the single-family market and the inability for many Americans to pay their mortgages yielded a net rise in apartments. And this is predicted to continue for 2012.

“The stars are aligned for another year of improving fundamentals, rising rents and investor demand for apartments,” Hessam Nadji, managing director, research and advisory services for Marcus & Millichap, tells MHN. “Market selection and changing investment strategy to increase yields will be critical to successful investing in 2012. Multifamily development will ramp up but fall short of cooling, yet [there will be] strong renter demand.”

The National Apartment Index (NAI) predicts that because of continued employment growth, U.S. apartment vacancies are expected to drop to 5 percent by the end of 2012, which is a 40-basis-point decline since 2011. Because of this, there is a 4.8 percent rent increase expected. Additionally, because of rising immigration and 2.1 million echo boomers entering prime renter age, household formations are expected to increase by 29 percent by 2015.

The top two spots of the NAI include two areas in the San Francisco Bay, Calif., area (San Jose and San Francisco, respectively). New York earned the third spot, followed by Washington, D.C.

According to the report, in 2012, lenders will continue to finance multifamily developments and acquisitions with historically low interest rates, according to William E. Hughes, senior vice president and managing director of Marcus & Millichap Capital Corp.

“Fundamentals and a favorable spread against Treasuries will promote multifamily development this year,” Hughes said in a press statement. “Fannie Mae and Freddie Mac will remain the chief suppliers of apartment loans in an increasingly crowded field of providers.”

Additionally, multifamily investment sales are expected to increase in 2012.

“Sellers will bring more properties to market, capitalizing on strong investor demand, based on the strong economic gains recorded at the end of 2011,” John Sebree, national director of Marcus & Millichap’s National Multi-Housing Group, said in a press statement. “Expect higher levels of workout activity from banks and lenders.”