Situs RERC Multifamily Market Investment Conditions 2Q 2017

Multifamily Market Investment Conditions 2Q 2017

Situs RERC’s institutional investment survey respondents continued to have concerns about the multifamily sector during second quarter 2017. The main concern among respondents was overbuilding, particularly luxury product in gateway cities like New York and Los Angeles. However, similar to some of the other property sectors, respondents commented that investors might be able to find multifamily property bargains in areas where supply does not surpass demand.

During the second quarter, respondents recommended selling and holding onto multifamily properties as the most ideal investment options. Buying multifamily properties was the least appealing investment option among respondents.

Situs RERC’s required pre-tax yield rate for the multifamily sector decreased 20 basis points to 7.0 percent during second quarter 2017, and the multifamily sector required going-in and terminal cap rates decreased 20 basis points to 5.0 percent and 5.4 percent, respectively.

Situs RERC’s expected rental and expense growth rates for the multifamily sector decreased 10 basis points to 2.8 percent during second quarter 2017.

Conclusion:

The glut of new multifamily properties is bringing the multifamily sector boom to an end. Several cities, including Austin and Nashville, experienced a massive number of new completions after the Great Recession and are now having to offer concessions such as free rent and no security deposits to attract tenants. With more multifamilies coming onto the market faster than new renters signing the leases, investors will be keeping an eye on vacancy rates and rent growth as the sector works through its inventory.

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