NAA on Multifamily Market Momentum

The apartment association surveyed industry experts about their business plans, expectations and market trends.

By IvyLee Rosario

The multifamily market is constantly changing, with some metros thriving while others are low in demand. In the National Apartment Association’s Q2 Market Momentum Report, industry experts were surveyed about their business plans, expectations and trends in the industry. Paula Munger, director of industry research & analysis for NAA, spoke to Multi-Housing News on some of these predictions and what certain markets should work on in order to offer more opportunistic growth. 

Investment Interest

Paula Munger, director of industry research & analysis, NAA

Paula Munger, director of industry research & analysis, NAA

When it comes to market investment, economic growth is one of the key factors. According to the report, Miami/South Florida is ranked number one in terms of which market will have increased investment over the next year. This rating reflects long-term potential returns over today’s revenue production. Following on the list is Dallas, Washington, D.C., Atlanta and Seattle. These markets are among the top for revenue growth and investors predict the growing economies of these cities will generate a larger demand for more apartments, in addition to the high supply of construction volume. “Miami was a surprise,” said Munger. “While it’s exhibiting solid market fundamentals, it’s far from stellar. Still, consistently high occupancy rates, even during the depths of the recession, make it a good long-term bet for investors.”

On the other end of the spectrum, major market such as Houston, Phoenix and San Francisco are losing investor interest. Houston is undergoing the largest rent cuts among popular markets, forcing investors to take a step back and head to metros that offer more growth potential. Most properties currently under construction are close to completion at the same time that job growth is accelerating. Rents in San Francisco are rising, a swift change from price cuts that took place in quarter four of 2016, leaving investors to wonder what opportunity there might be, if any, in the Bay Area. Rounding out the bottom five were also Baltimore and Dallas, which could be a hit or miss over the next year since it is on both lists.  

“Like last quarter’s survey, Dallas is experiencing a ‘should I stay or should I go?’ sentiment as it appears on both lists, so no surprise there,” added Munger. “San Francisco was a new entrant to the list that may be short-lived as we’re seeing rents begin to rise again.”

Rent Growth

In addition to being a top performer for investment opportunity, Seattle topped the list for highest rent growth expectation, although it may be difficult to keep the 8 percent annual increase. The decline of regional job production has kicked Southern California markets off the list and has brought in Dallas, Central Florida (Tampa/Orlando), Atlanta and Boston as the strongest rent performers going into 2018. Seattle’s potential comes from overall economic growth occurring at a stunning pace, according to Munger. “This is fueling lots of housing demand. Thanks to Amazon’s expansion, the urban core accounts for more of the total job production than in most metros. This is one of the few places where rent growth for top-tier product in the urban core matches the rent growth rates seen in the suburbs.”

Weaker rent performers include Houston, Washington, D.C., New York City, Nashville and Austin. Only 10 percent of industry experts surveyed said they would avoid flat to negative rent changes in all markets, whereas more than 25 percent expected to sidestep downturns. Nashville is the newest metro on the list having these rent growth issues, while Houston has been a troubled city for quite some time. On what the top five markets are offering that the bottom five should improve on, Munger notes it mostly comes down to revenue growth. “Particularly in Dallas, Atlanta and Seattle, which are among the top performers for rent increases. As noted above, Miami offers long-term stability, much like D.C. — if not spectacular returns.” 

Resident Retention 

According to the survey, Atlanta has clawed its way to the top when it comes to resident retention, drastically improving compared to past years. The most significant changes came down to Dallas, who was ranked number one in last year’s survey, but didn’t make the cut. Product delivery is accelerating in the city, which may be causing a shift from one property to another in certain neighborhoods. Additionally, Washington, D.C. followed behind Atlanta, with Charlotte and Raleigh tying for third place. Seattle’s continuous rent growth and investment opportunity caused it to finish off the list at number four, showing that resident retention is still going strong. 

Although there are both top and bottom markets, retention varies by individual metros and those owners and operators. In the difference of one year, Atlanta, Charlotte and Washington, D.C. have ended up on both lists for resident retention, proving that these cities aren’t stagnant and it is possible to be both strong and weak. Houston took the number one spot for weakest retention, which coincides with its spot for weakest in overall rent growth. In order to increase retention, these weaker markets need to work on a slowing of new product, as stated by Munger. “That will certainly help as residents can often find a better deal in their target market when landlords are competing on concessions. Houston is a good example of this  – a trend which may begin to reverse itself as its economy slowly improves.”

Image courtesy of NAA

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