What Multifamily Supply Data Misses: Q&A With Hines’ Lawler
The managing partner & head of the Americas on why the company isn't making broad sector calls today.
After several years of record-breaking apartment construction, the U.S. multifamily sector is entering a more uneven phase. During the first quarter, developers completed 203,073 units, down 41.3 percent year-over-year, according to Yardi Matrix data. But national figures reveal little about how dramatically supply and demand conditions differ from one metro to another.
Hines’ recent activity illustrates the breadth of today’s opportunity set. Earlier this year, an affiliate of the firm paid $105 million for a 235-unit property in Oxnard, Calif., that was 96.2 percent occupied at the time of sale. Hines is also moving ahead with a 306-unit development in Naperville, Ill.
In this interview with Multi-Housing News, Hines Managing Partner & Head of Americas Ray Lawler discusses how investors are distinguishing temporary supply pressures from structural challenges. He also explains what Hines sees in markets ranging from Chicago and Philadelphia to Austin, Texas, and Atlanta, and which signals could point to the next investment opportunity.
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How would you characterize the U.S. multifamily market today? What’s driving the divergence among markets?
Lawler: The long-term demand story remains strong, but the near-term picture is highly uneven. Some markets are still absorbing a significant wave of apartment deliveries, which is pressuring rents and increasing concessions, while others have much tighter availability and resilient renter demand.
That divergence is why we are focused less on broad sector calls and more on individual markets and submarkets. Employment growth, affordability, household formation, local supply and barriers to development can produce very different outcomes even between markets that appear similar on the surface.
Why can today’s national supply picture be misleading when investors evaluate where conditions are headed?
Lawler: Those headlines reflect a real part of the market, but they mask significant differences beneath the national numbers. Much of the pressure is concentrated in markets that have experienced unusually high levels of development over the last several years.
Elsewhere, availability remains constrained and renter demand is healthy. More importantly, development activity has fallen considerably from its cyclical peak, which means today’s supply picture is not necessarily a good indicator of where conditions will be several years from now.
That is why we think the national narrative can obscure opportunities in markets where current sentiment does not fully reflect the underlying fundamentals.
What separates a market with a temporary supply imbalance from one facing longer-term structural challenges?
Lawler: The key question is whether the market has enough underlying demand to work through excess supply over time. Elevated vacancy or concessions can be temporary if employment, household formation and population growth remain healthy. The risk becomes more structural when excess inventory is paired with weaker economic growth, slowing household creation or continued development that outpaces demand.
We also look at how easily additional housing can be built. Markets with meaningful land, entitlement or cost barriers may correct more quickly once current supply is absorbed, while markets where development can continue relatively easily may remain competitive for longer.
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What characteristics are supporting stronger multifamily fundamentals in undersupplied markets?
Lawler: The strongest markets typically combine durable employment and household growth with meaningful barriers to adding housing. Land constraints, entitlement complexity and high construction costs can limit new supply even where demand remains strong.
Affordability is increasingly important, as well. In many markets, the cost of homeownership remains substantially above the cost of renting, keeping households in rental housing longer and supporting a broader renter base.
When those dynamics are combined with limited vacancy and a relatively modest development pipeline, they can provide greater visibility into occupancy and rental performance.
How are barriers to homeownership and demand for more space reshaping renter expectations and the opportunity set for investors?
Lawler: These dynamics are expanding the renter base and extending the duration of renting. High home prices and financing costs are keeping more households in rental housing for longer, including families and higher-income renters who may previously have transitioned to ownership.
That is also changing what renters expect from the product. Larger units, quality, amenities, location and access to schools or employment are becoming increasingly important.
As a result, we see a broader opportunity set across high-quality multifamily and suburban rental formats that can offer more space and flexibility while still delivering the convenience of renting.
How are investors differentiating among high-growth Sun Belt markets, gateway cities, Midwest metros and other historically supply-constrained locations?
Lawler: Investors are becoming much more selective within each of those categories. Some Sun Belt markets continue to offer compelling population and employment growth, but recent construction means timing and basis matter considerably more than they did several years ago.
At the same time, gateway and Midwest markets with more limited development pipelines are receiving greater attention because their operating fundamentals have often been more resilient.
The shift is less about capital abandoning one region for another and more about investors differentiating among markets based on current pricing, competitive supply and the visibility of future cash flow.
Which markets currently offer the most compelling multifamily opportunities and what fundamentals are supporting their performance?
Lawler: We see compelling opportunities in markets such as the Bay Area and Chicago, where healthy renter demand is intersecting with relatively limited new supply. Philadelphia also stands out as a market where the underlying fundamentals may be stronger than current investor sentiment suggests.
We are also watching Austin and Atlanta closely. We continue to believe in their longer-term employment and demographic growth, but near-term performance is still being influenced by the recent development cycle.
The opportunity is not simply about identifying a “best” city. It is about finding markets where pricing, operating fundamentals and the competitive landscape create an attractive risk-adjusted opportunity today.
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How should investors adjust their underwriting when evaluating an oversupplied market compared with one where housing shortages continue to support rent growth?
Lawler: In an oversupplied market, underwriting needs to reflect a longer and more competitive path to stabilization. That means being conservative on rent growth, concessions, occupancy and lease-up and understanding exactly what competing supply is still coming into the submarket.
In a supply-constrained market, stronger fundamentals may provide greater visibility into occupancy and rental growth, but that should not lead to aggressive assumptions around basis or exit pricing.
In both cases, operating execution matters more than it did several years ago. Insurance, taxes, utilities, maintenance and property-level management can materially affect performance, so underwriting must extend well beyond the top-line rent story.
What signals indicate that a market is approaching an attractive investment inflection point?
Lawler: Some of the most compelling opportunities may emerge in markets where near-term sentiment has become more negative than the long-term fundamentals warrant. Development cycles are long, so markets experiencing excess supply today can move toward much tighter conditions as construction slows and existing inventory is absorbed.
We are watching for that inflection point: deliveries beginning to crest, starts falling materially, absorption remaining resilient and concessions starting to normalize.
We are equally interested in markets where supply is structurally difficult to add. In both cases, the opportunity is often greatest when the fundamentals are beginning to improve, but pricing has not yet fully reflected that change.
