NAR Predicts Better Times Yet for Multifamily

Chicago–The National Association of Realtors is predicting better times ahead for commercial real estate, including the apartment rental market, which has already experienced a strong recovery from the recession. As U.S. job growth improves, it might seem counterintuitive that the apartment market would benefit, since historically Americans have returned en masse to the for-sale housing market during periods of post-recessionary growth.

Apparently that’s not the case this time around, so great has the impact of the recession been on consumer mindsets. The apartment rental market, according to the NAR in its latest “Commercial Real Estate Outlook,” will continue to tighten as household formation grows. Multifamily vacancy rates should drop from 5.8 percent in the current quarter to 4.7 percent in the second quarter of 2012, the report posits.

Some places are already experiencing quite tight multifamily markets. MSAs with the lowest multifamily vacancy rates presently are Pittsburgh; San Jose, Calif.; and Portland, Ore., all with vacancies below 3 percent.

Moreover, in other good news for apartment owners and investors, the NAR is predicting that average apartment rents will rise 3.4 percent this year and another 4.3 percent in 2012. The reason is rising demand coupled with a sluggish development pipeline. Multifamily net absorption is forecast at 250,800 units in 59 tracked metro areas in 2011.

Curiously, the ongoing strength of the multifamily sector, with its consistently falling vacancy rates and rising rents, may in fact send some people back into the for-sale housing market, though presumably they are now renters by choice who have the means to buy. “Solid rises in apartment rents will force some renters to consider home ownership,” NAR chief economist Lawrence Yun noted in a statement upon the release of the NAR’s “Commercial Real Estate Outlook.”

The backdrop of these strong times for multifamily is that the economy will likely add between 1.5 million and 2 million jobs annually both this year and in 2012, with the unemployment rate falling to 8 percent by the end of next year, down from 9 percent currently. The NAR predicts that vacancies will be trending down in all commercial real estate sectors, with a number of individual markets already stabilizing.