Ten-X Commercial, a nationwide data-powered online commercial real estate transaction platform, on Jan. 25 released its latest U.S. Apartment Market Outlook, including the top five ‘Buy’ and ‘Sell’ markets for multifamily real estate assets.
The company’s long-term forecast shows that, following years of growth, national rent growth is decelerating and vacancies are beginning to increase.
The Ten-X report identifies Sacramento, Raleigh, Riverside-San Bernardino, Jacksonville and Fort Worth as top five markets, respectively, where investors should consider buying multifamily assets. According to the report, demand for apartment rentals in these areas continues increase as more households are formed and there are not enough single-family starter homes available.
According to Ten-X, the growth in manufacturing, leisure and hospitality employment opportunities is laying a strong foundation for a local economic expansion. It is because of these factors that Ten-X says it sees “resiliency” in the Fort Worth market’s apartment sector.
Based on vacancies and rent growth information, the report predicts that the local market will efficiently recover from the minor forecasted downturn. Additionally, according to the report, Fort Worth is projected to see some of the strongest growth in the country.
“Demand will keep vacancies near 3.5 percent through 2018, and rents will grow vigorously even as completions ramp up,” the report states.
Conversely to the previously listed top five, San Francisco, San Jose, Oakland, New York City and Miami have been identified as the top five markets, respectively, where market conditions might cause multifamily investors to consider selling their properties.
According to the report, these cities are seeing an increase in vacancies and flattening rents as a multitude of new multifamily development is hitting the market.
For more information about each market, view the full report here.
On a more nationwide outlook, Ten-X Commercial’s research team notes:
— Completions look to exceed 260,000 units for the second straight year
— Absorption will be about 200,000 units for the fourth straight year
— Vacancies are forecasted to rise in 2018 and beyond.
“In a modelled cyclical downturn from 2019-2020, vacancies would approach 6 percent in 2020 before an economic recovery in 2021 brings renewed demand,” the report states.
The research team noted that rent growth is expected to remain at 3 percent in 2018 before slowing during the the modelled recession, though they expect this down cycle will be “more benign for the apartment sector than previous downturns when rents actually declined.”
“All good things come to an end, and this truism is now to become manifest in the multifamily sector where the long-anticipated turning of the cycle is underway,” Ten-X Chief Economist Peter Muoio said in the report. “Developers have spent years betting on the shift in preferences towards renting and living in walkable urban downtowns. Now the critical mass of supply deliveries is weighing on the sector. While the downturn’s effects should not be cataclysmic for multifamily owners in most markets, there’s no denying that the sector’s outlook is distinctly grayer than a year or two ago.”
U.S. apartment rents rose 3.3 percent over the past year, down from the nearly 6-percent growth rate in late 2015 and early 2016. Additionally, according to the report, overall deal volume totaled $41 billion during the third quarter, an 11-percent increase from the same period in 2016.