Multi-family developments in the commercial real estate sector are expected to flourish and reach peak in 2019.
Following a pickup in market demands this year, multi-family developments in the commercial real estate sector are expected to continue on its current path and reach a peak in 2019.
When it comes to multi-family housing, investors, developers, and builders throughout the United States – especially those based in urban/metro areas – are scrambling to keep pace with the surging demand for multi-family housing. In fact, by the culmination of 2018, an estimated 360,000 new, multi-family units are slated for delivery, which shows a 20-percent increase over 2017.
As we look ahead to the fourth quarter of 2018, approximately 600,000 units are under construction across the U.S. Compare that to the last three quarters of 2017, where only 220,000 units were delivered nationally.
Likewise, as we look to 2019, this growing trend is expected to remain on the incline before reaching its peak. So what does this mean for you? The experts at Valbridge Property Advisors are here to break down everything you need to know about the multi-family construction sector as we look forward to the coming year.
Multi-family Construction Trends For 2019
Multi-family Trend One: An Interest in Urban Life
Across the nation, multi-family developments are attracting all adult cohorts (especially retirees and those looking to downsize), but their true targets seem to be Millennials and empty nesters.
Recent renters-by-choice, mostly in their 30s, are opting for high-service, high-amenity living. Many developers are making the switch to appeal to “young urban Millennials” – those who will trade space for close-in location and want to live near like-minded people.
Industry observers say the common thread that connects these groups is the desire for a low-maintenance, urban – or at least walkable – experience, enhanced by amenities and technology that create a communal live-work-play nirvana. As we head into 2019, new construction today differs from the past because it’s a lot more urban. Multi-family developments are a hot commodity for those looking for the convenient and available lifestyle that matches the world we live in today.
Multi-family Trend Two: The Desire for Affordability
Single-family home supply, location, and pricing options are encouraging buyers to consider multi-family options. Many potential renters may aspire to live in or close to downtown, but that lifestyle doesn’t come cheap. A significant percentage of prospective renters are in a financially fragile state, and their housing options are narrowing as more and more developers and investors slavishly pursue deep-pocket customers.
In markets where rental affordability is particularly acute, developers are simply building smaller units. These units are being made more attractive by creating multifunctional spaces within the apartment unit. When it comes to affordability with multi-family housing, location is the leading factor influencing people’s decision to move into small units. That’s according to a new Urban Land Institute report based on an analysis of 400 apartment communities in 35 metros and responses from 3,500 renters.
Bottom line: affordable multi-family units are flourishing not only in luxury spaces, but in convenient, multi-family areas as well.
Multi-family Trend Three: Numbers Are Looking Up
According to the National Association of Home Builders, confidence in the U.S. multi-family housing market has remained positive throughout 2018.
An MPI measures builder and developer sentiment about current conditions in the apartment and condo market on a scale of 0 to 100. The index and all of its components are scaled so that a number above 50 indicates that more respondents report conditions are improving than report conditions are getting worse. At the beginning of 2018, the MPI for multi-family housing sat at 53.
The Multi-family Vacancy Index (MVI) measures the multi-family housing industry’s perception of vacancies, and remained essentially unchanged with an increase of one point to 42. The MVI is a weighted average of current occupancy indexes for class A, B, and C multi-family units, and can vary from 0 to 100, where any number over 50 indicates more property managers report more vacant apartments. A reading of 42 is seen as a healthy number for the multi-family market.
Historically, the MPI and MVI have performed well as leading indicators of U.S. Census figures for multi-family starts and vacancy rates, providing information that forecasts the year to come.
A Multi-family Housing Peak In 2019
The upcoming year is expected to bring a rise in multi-family completions as units under construction reach the finish line. But after reaching a peak in 2019, new supply is predicted to level off as an increase in vacancy rates coupled with construction lending regulations are causing some developers and lenders to exhibit caution moving forward.
So how can you prepare for the upcoming year in terms of taking advantage of a peaking industry?
Pair With a Professional
Pairing with a tried and trusted property advisor will keep you in-the-know regarding trends and fluxes within the multi-family housing market. After all, now is the perfect time to put your foot in the door and to take advantage of countless opportunity. But you shouldn’t tackle such a big job alone.
Valbridge appraisers evaluate commercial property based on objective criteria, in-depth knowledge of local property markets (as outlined above), and time-tested judgment. We identify and analyze the variables that affect value, often seeing what others don’t see based on our expertise and independence.
Every Valbridge office is managed by an appraiser who holds the MAI designation of the Appraisal Institute. The MAI designation is conferred only on appraisal industry professionals who:
- Pass rigorous education requirements
- Pass a final comprehensive examination
- Demonstrate specialized experience and knowledge
- Conduct their professional activities in accordance with the Appraisal Institute Code of Professional Ethics, subject to an enforcement peer review process
- Commit to strict continuing education requirements
Additionally, Valbridge maintains its Quality Control Committee, headed up by some of the professions best, to ensure that property appraisals and evaluations meet consistent company standards for quality and reporting.