The multifamily sector has been in a continuous state of growth over the last few years, with the development of 2.34 million new apartments in the last decade alone. As the new year and decade approaches, an optimistic outlook of long-term growth potential for the multifamily market is predicted. This exponential growth is largely due to a growing economy and job market, plateauing homeownership rates, low interest rates, and solid consumer confidence.
Read ahead to discover the future projections for the multifamily sector in 2020 and learn what these projections could mean for the upcoming year.
The Multifamily sector is positioned for a favorable performance and growth in 2020. However, the new supply of apartments being built in the new year is expected to outpace demand. This will result in some “cooling” within the sector. Apartment demand for 2020 is projected to decrease to 240,000 units, approximately 20% less than that of 2019’s estimated 300,000 units. Despite this mild slowdown in demand, the sector is predicted to have enough stability to absorb most of the new supply within oversaturated markets.
Although multifamily demand is predicted to decrease, multifamily completions are anticipated to remain robust. In fact, approximately 280,000 units are set to be completed in the new year. This includes new development within both urban and suburban locations. However, based on market performance and investment returns, suburban multifamily will remain the best bet in 2020.
Occupancy and Vacancy Rates
Since the first quarter of 2018, the national vacancy rate for the multifamily asset class has remained at or near 4.7%. In 2020, the multifamily vacancy rate is expected to remain under 5% – as it has been for the past five years. According to CBRE, however, the vacancy rate for the new year will be 4.5%.
Top Markets for Multifamily Performance
CBRE Research has designated Austin, Atlanta, Phoenix, and Boston as the top four markets for multifamily performance in 2020. This designation encompasses three very high-growth metros with very active construction (Austin, Atlanta, and Phoenix) by population, households, employment, and multifamily demand. Additionally, Boston, an emerging gateway market, is predicted to be a top multifamily leader in 2020.
The multifamily market in Austin is experiencing significant growth that is driven by an increasing demand. The projected demand for this market is so intense that Austin will need to increase its inventory of rentals by nearly 50% by 2030 if it is to keep up with the expected pace of growth.
Atlanta is emerging as a leader in multifamily performance. With a rent increase of 4.8%, Atlanta ranked among the country’s rent growth leaders in 2018. In 2019, the demand for apartments greatly outweighed the supply by a nearly two-to-one ratio. More than 4,200 units were rented while 2,700 new units were delivered into the market.
With positive job growth, hundreds of new residents moving into the city daily, and a strong demand for multifamily housing, Phoenix, Arizona is predicted to experience another year of substantial multifamily growth. In 2019, Phoenix had a reported growth in net operating income of 3.2% and an occupancy rate of 95.5%. Because of its substantial growth this year, CBRE predicts that Phoenix will remain a top multifamily leader in 2020.
The Greater Boston Area has experienced historically low unemployment rates, higher wages, salaries, and bonuses within past years. As a result of this added capital, the demand for updated apartments and new construction within the city has increased tremendously. With a rapidly growing market, Boston is predicted to be a top performing market in 2020.
The multifamily market has had consistent growth over the last decade and is expected to begin the new decade with a strong year. Despite an expected “cooling” in demand in 2020, the market is predicted to be strong enough to endure and remain stable. As we head into the new year, the commercial real estate industry should be prepared for yet another prosperous year for the multifamily sector.
Read 3 Key Takeaways from Deloitte’s 2020 Commercial Real Estate Outlook for more information on the industry’s outlook for 2020.