2018 Multi-Family Market Outlook

\"Multi-Family\"It\’s been discussed and forecasted that the multi-family market is going to be down in 2018 … perhaps by almost 10%. But is a down year a \”bad\” year? Not when the prior year was a record and 2018 is projected to be the second best year.
Societal demographics are changing and favor multi-family construction.  Consider:

  • Cost of living, and housing, continues to rise.
  • Student loans for many are high, restricting ability to purchase homes (and get mortgages)
  • Cities are reinventing their downtown areas
  • New tax restriction on mortgage deductions
  • Transportation challenges
  • Interest in driverless cars
  • and more.

And at the same time, many moving into more costly multi-family environments (condos, townhomes, nicer apartments, corporate apartments) want amenities that historically only went into homes … not all of them are \”basic\”.
Here\’s the forecast from Building Design & Construction Magazine:

Multifamily 2018 outlook: Developers tap the brakes, but will maintain historic pace
Multifamily developers are poised to register the second-highest annual completions count of this cycle in 2018, but with fewer completions than 2017’s cycle peak, according to a CBRE report.
JANUARY 10, 2018 |

Photo: Pixabay

Development will play a key role in the U.S. multifamily market in 2018. Developers are poised to register the second-highest annual completions count of this cycle, with as many as 258,000 units delivered. This is based on 62 markets tracked by CBRE Econometric Advisors.
This would be down by 9.2% from 2017’s cycle peak, projected at 284,000. Apartment starts began to slow in 2017, so the multifamily market will get a reprieve from new supply by late 2018 and throughout 2019.
Starts will continue to slow in 2018, as banks have scaled back development lending over the past two years. While other sources of development capital have emerged (e.g., debt funds) or reemerged (e.g., HUD financing), the climate for financing new development should remain more conservative, and debt capital costs more expensive.
For more, download CBRE’s free 2018 Multifamily Outlook report (registration required).
As of December 2017, nearly 23% of all units under construction in U.S. markets are in urban cores. In the long term, urban core multifamily will perform well, but for the short term, market statistics indicate that the best development opportunities are in the suburbs.
\"\"Suburban markets have seen the highest rent growth rate over the past two years.

Pursing the Opportunity
  • While distributors may be challenge to get to the developers, there are usually selected contractors within a market who work on these projects.
  • Productivity and cost-saving items are usually important to these contractors.
  • Depending upon the city, delivery of material needs to occur overnight / early in the morning due to delivery issues … try getting into NYC for a material delivery at 10:00AM!
  • Are there REITs located in your area? They may be the developer?
  • Network to residential developers and sometimes commercial developers.  Or perhaps the real estate people in your area (not the traditional housing real estate agent).  They know who the key players in town are.
  • Sometimes the investment comes from out-of-state.  As a distributor, perhaps you can follow-them?
  • Treat this like housing.  Their objective is to rent / sell these units as quickly as possible for the highest price.  How can you help them make their units look \”the best\” to help them meet their goals? What features should the units have to attract the tenant profile? What should the look / feel / amenities be?

And then again, you can just serve the market and provide the material as a project bid.

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