Top Multifamily Markets in 2020: Small Metros, Suburbs
In the second article of our 2020 outlook series, Presidium’s John Griggs weighs in on the main trends and challenges expected to shape the multifamily sector over the next 12 months.
After a slow start to the year, particularly due to higher interest rates, the multifamily market regained its pace in the second half of 2019. The Fed’s rate cuts, favorable demographics and employment gains have fueled rent growth, while availability of capital led to healthy investment levels. One of the main factors that will impact the sector in the next 12 months is new supply, as development activity peaked in most markets and demand is anticipated to moderate.
“As a result of slower economic growth, apartment demand is projected at 240,000 units in 2020, approximately 20 percent less than 2019’s estimated 300,000 units,” CBRE’s market outlook for 2020 shows.
Presidium is one of the companies that will continue to expand its portfolio in the year ahead, particularly with new units built in high-growth southern markets. In the interview below, the company’s co-founder & co-CEO, John Griggs, analyzes the past year and touches on tech, sustainability and emerging multifamily markets in 2020.
How would you describe the multifamily market today?
Griggs: On a national level, the multifamily market varies greatly across the country and also between metropolitan areas due to differences in supply and demand, job growth etc. For example, we are seeing some of the best job growth in the country in Dallas-Fort Worth, resulting in a combination of positive occupancy and rent growth.
In other cities, like Minneapolis or Washington, D.C., the lack of job growth is causing a dent in demand. But, generally, most metropolitan areas are seeing above-average job growth, allowing the multifamily rental demand to remain stable.
What was Presidium’s growth strategy in 2019? How will it change in the next year?
Griggs: In 2019, Presidium continued to concentrate on optimizing the capitalization of the company’s assets and strategically planning acquisitions, developments, refinances and dispositions. This included groundbreakings on Presidium at Town Center, a 370-unit luxury residential community in one of Jacksonville, Fla.’s, most sought-after entertainment districts and Presidium at Revelstoke, a 408-unit luxury residential community in Alliance Town Center, North Fort Worth’s premier shopping and dining hub.
Next year will bring a host of new developments—we expect to break ground on 370 units in San Antonio, 290 in Grand Prairie (DFW) and 300 in Austin in the first few months of the year. We expect other sites we are currently programming to break ground in Austin, Dallas-Fort Worth and possibly Houston by year-end. We are also masterplanning a couple large tracts in the Austin area and may have some announcements on more detailed plans for those in coming months.
As a result of our ongoing efforts, Presidium has generated returns from its projects exceeding 30 percent IRR and improved over 10,000 apartment units. We have a development pipeline of 3,000 units and over 250 acres of infill land slated for future large-scale development.
Presidium recently broke ground on Presidium at Revelstoke, a luxury community incorporating smart technology into its units. What role does technology play in your projects?
Griggs: As the world becomes more focused on smart home technology, the building industry has made leaps forward to adapt to a new way of living. Many of our projects, including Presidium at Revelstoke, integrate technology into units that allow residents to control the temperature, access and lighting in the homes all from their wireless devices. Other tech amenities we are seeing in multifamily include online payment systems, communication engagement apps, keyless entry, high-speed internet and pet remote cameras.
High-tech amenities that add convenience and simplification into renters’ lifestyles, like smartphone apps that give residents instant access to property management and events, will continue to be a valued asset. Going forward, it will be important for technology to evolve, so that the different amenities not only integrate well together and can be consolidated into one control system, but are also user-friendly for the tenants.
The company is invested in sustainable energy projects through its Presidium Energy division. Tell us your thoughts on going green.
Griggs: Going green is no longer an added bonus, but an expectation that must be met by construction professionals. Presidium works closely with our team of architects, designers and contractors to use products that contribute to LEED v4 points, the world’s premier benchmark for high-performance green buildings. Developers will increasingly prioritize using building products that are made from recyclable, sustainable materials and emit low VOC.
What should we know about multifamily investment opportunities in 2020?
Griggs: Multifamily investment opportunities are expected to be strong in 2020, and a safe bet for commercial investors. Renters on short-term leases should continue to grow, offering a steady investment environment.
What about challenges in the industry?
Griggs: As housing prices and rents continue to rise in 2020, we will see a greater focus on affordable housing solutions. The best solutions will be policies that encourage development of denser housing closer to urban cores and employment centers and public-private partnerships that make quality affordable housing economically viable to build.
We have renovated thousands of units and dozens of neglected apartment communities from disrepair into places our residents are proud to call home. We have also rooted out crime at apartment communities by working closely with many organizations, including police departments and neighborhood groups, as well as groups that provide affordable and emergency housing for veterans, refugees and the homeless. We’re also active with location-specific challenges. The City of Austin recently experienced a spike in homelessness and Presidium has committed to house 100 of the homeless at our properties this year.
Tell us about the submarkets we should keep an eye on in the 12 months ahead.
Griggs: The suburbs have now become the “booming” areas and will be a top market in 2020 for multifamily development, investment and absorption. Investors should also consider smaller metros, or areas with less than 2 million people, as we are seeing those urban cores boom.
Name your top predictions for the multifamily market in 2020.
Griggs: Multifamily completions were high in 2019 and with construction starting to slow down, 2020 promises to bring greater market balance. Overall, market trends for multifamily show a combination of positive occupancy and rent growth for 2020. As long as the job growth continues over the next 12 months, the future for multifamily looks very promising.