Cautiously optimistic is an overused term, but we can’t think of a better way to describe our outlook for the multifamily sector through the end of this yea and into 2019. On the plus side, market fundamentals are strong in most areas of the country, and the economy shows solid growth.
Multifamily construction starts are also strong, but some caution stems from the fact that 2018 building permits issued for multifamily housing have fallen for the past five months. Even with that decline, the year-to-date permit volume as of August 2018 is 1.8 percent ahead for the same period in 2017.
Other indicators are cause for optimism, including investor interest in multifamily assets and continued rent growth coinciding with positive—albeit decelerating—occupancy growth.
In the first half of 2018, five of the top 10 markets for commercial and multifamily construction starts showed increased activity compared to the same period last year. Leading the pack is New York City, where Brooklyn is outpacing Manhattan for the highest dollar volume. NYC’s multifamily market as a whole enjoyed a strong first half, yet a gradual softening of the market there—along with rising interest rates and property taxes—means we’re seeing more assets up for sale.
Next in line is Washington D.C., home to high-wage industries, healthy job growth, and a thriving tech sector, which all support an optimistic outlook for multifamily.
Miami, Boston and Seattle round out the Top 5 markets for construction starts. The South Florida market is trending toward apartments after years of condo building, with some conversions taking place to satisfy demand.
Boston beat out Seattle even though a study showed nearly two-thirds of its residents oppose multifamily project housing. In Seattle, projects are getting bigger due to the cost of land.
Although Houston did not make the list, it’s worth noting that multifamily there is rebounding one year after Hurricane Harvey as a strong asset class for investors. Investors also remain bullish on the hot DFW multifamily market due to a strong economy, growing population and corporate relocations.
Most multifamily design and market-demand trends—smart apartments run by the Internet of Things; keyless entry; pet amenities; electric car charging stations; less parking in urban markets—come as no surprise. Social media influencers are driving demand for high-end design and luxury finishes in multifamily communities.
Smart multifamily investors are carefully evaluating all multifamily market drivers along with local, regional and national economic indicators as we proceed into 2019.