Yardi Matrix Fall Analysis: Multifamily Outpaces Economy

Growth in the multifamily industry has been considerable as of late, but many are waiting for the other shoe to drop. After a few very solid job reports this summer, equity markets have jumped to record levels and volatility has tempered. In Yardi Matrix’s Fall 2016 National Market Analysis, analysts reported that moderation is on the horizon. “Growth has not been as robust as the consensus forecast at the beginning of the year,” the report states, “but weaker-than-expected GDP has largely been offset by strong employment gains and low inflation.” Financial markets results and positive metrics in consumer spending, wage growth and business inventories suggest that growth may make a comeback.

Rent growth is another area bearing seemingly good omens, as national rents increased 5 percent year-over-year through August. On the other hand, that percentage is a downturn from the 6 percent or more increases recorded during most of the past year. The report predicts continued demand and strong occupancy levels, but Matrix’s analysts foresee “more moderation in rents in line with wage increases and affordability issues.” Tech-centric metros with a recent history of pronounced increases in rents and supply have experienced the most deceleration.

The report anticipates 2016 to be a peak year for construction, with 360,000 units set to be delivered nationally, which is 45 percent more than the 249,000 of 2015. The trends of new Millennial household formation and downsizing retirees will keep demand strong and occupancies at or near record levels in most markets. While most will easily absorb the new supply, some markets that are overbuilding or experiencing weakening job growth will have trouble mitigating the effects of the increase in stock.

The amount of capital attracted by multifamily has lessened slightly due to skittishness regarding a peaking market or slowing economy, but the report maintains that multifamily real estate is “near the top of the list of safe investments for institutions both foreign and domestic.” Due to price appreciation escalating after leveling out in the spring, Yardi Matrix expects appreciation to flatten in the next year as property yields near the bottom, with mostly due to increases in income.

To read the full report, visit the Yardi Matrix website.