NMHC Special Report: 2017 Market Outlook

The biggest economic fear was another recession, but that idea has now been pushed out, with many industry experts finding themselves optimistic for the year ahead.

San Diego—The National Multifamily Housing Council hosted the 2017 Apartment Strategies Outlook Conference on January 24, 2017, covering topics ranging from value-add properties and maximizing returns to driving investor sentiment and dealing with issues in development. Throughout the conference, industry experts shared their data and strategic planning for what to expect this year in the multifamily industry as well as what changes might arise within the coming months. Market research was a large topic of discussion among the various panels, including talks of supply and demand, rent growth opportunities and the impact of these topics on the multifamily industry.

The biggest economic fear was that another recession was around the corner, but that idea has now been pushed out, with many industry experts finding themselves optimistic for the year ahead. In larger markets, job growth is continuously increasing and in 2017 we will experience greater economic growth. Although the interest rate hike is something that may seem drastic at first, most people were expecting the announcement and took advantage of contracts that were made before this change took place.

Mark Obrinsky, senior vice president, research & chief economist, MNHC; Jeff Adler, vice president, Yardi Matrix; Jeanette Rice, Americas head of Multifamily Research, CBRE

Mark Obrinsky, senior vice president, research & chief economist, MNHC; Jeff Adler, vice president, Yardi Matrix; Jeanette Rice, Americas head of Multifamily Research, CBRE

“The inflation isn’t a double digit increase. We are still at historically low interest rates and are still in a favorable interest rate environment,” said Jeanette Rice, Americas head of Multifamily Research for CBRE. “Interest rates will be hiked up three more times, which seems high because we haven’t been there in a long time. Based on CBRE’s Cap Rates survey, out of 72 transactions made in 2016, only 19 of those had any price adjustment changes. This isn’t anything dramatic.”

The demand for housing is a fitting one, with the supply becoming slim in certain areas. Many industry experts shared that there are still properties being built, but the problem comes down to building the same types of assets, in the same areas, where they are no longer needed. There is a distinct housing shortage, especially when it comes to lifestyle changes for residents.

“There is a housing shortage, yet demographics show that apartments are going to be favorable over the long-term,” said Jeff Adler, vice president, Yardi Matrix. “There will be an increase in demand for renting, so this will continue to be a great industry to be in.”

Jay Lybik, vice president of Research Services, Marcus & Millichap; Jay Parsons, vice president, MPF Research and YieldStar Investment Analytics, RealPage; Jay Denton, senior vice president, Analytics, Axiometrics

Jay Lybik, vice president of Research Services, Marcus & Millichap; Jay Parsons, vice president, MPF Research and YieldStar Investment Analytics, RealPage; Jay Denton, senior vice president, Analytics, Axiometrics

Job growth and development are correlated, which can prove to both help and hinder a specific market. According to Jay Denton, senior vice president, Analytics for Axiometrics, as job growth slows in a certain market, that causes development to slow, creating an increase of supply but no demand. Places such as Atlanta, Las Vegas, Orlando and Phoenix all show potential with strong rent growth but need another year or so to actually perform well. Urban areas are consistently seen as the go-to for development, but the supply is already overwhelming.

“These property owners want that transient urban renter, but the problem with that is, they don’t stay, so they get no renewals,” said Jay Parsons, vice president, MPF Research and YieldStar Investment Analytics for RealPage. “Housing in the central business district now has a lower rent growth and the suburbs are growing. Urban areas are seen as less risky, but at what point does that gap no longer make sense?”

The biggest takeaways for 2017 are to stop worrying about affordability and single family properties. There is continuous income growth happening so even when rents are going up, these properties will still be affordable. There is a need for more affordable housing in general, but those efforts should be concentrated on lower tier properties. Single family developments are still not as popular of a choice as apartments, with millennials continuing to show a greater interest in renting than a long-term purchase. Plus, starter homes are having difficulty being built closer towards the central business district, making it more difficult to have that live/work/play appeal.