We expect the fundamentals of the multifamily market to remain strong in 2019 despite concerns that the overall real estate market may be slowing.
"People wonder, 'How much longer can the apartment sector keep going?' said Calvin Schnure, the National Association of Real Estate Investments Trusts' senior vice president of research, in a recent interview with NREI.
His answer? “For a long time."
Here are five trends to watch in the multifamily sector this year:
1. There Will Be A Slight Slowdown in New Units
The apartment market, following record growth over the past five years, may have hit a plateau, according to Real Page Analytics. Some 320,000 units are scheduled for completion in 2019, the same as last year.
The National Apartment Association similarly projects construction completions will be somewhat lower this year than in 2018, but still in line with the past few years, according to Paula Munger, the NAA's director of research. Construction permit volume also slowed in the latter half of 2018, likely resulting in fewer starts early this year.
The slowdown is "primarily a result of difficulties delivering new apartments due to higher construction material and labor costs, construction labor shortages and general barriers to construction, whether in the form of regulations, complicated approval processes or community opposition to new development," Munger told Greystone.
However, permits for multifamily construction may pick up later in the year, "especially given the supply shortage of for-sale single-family homes and rising mortgage interest rates," Munger said.
2. Rents Will Stabilize
While rent prices have been on the rise the past few years, they are expected to increase at a lower rate in 2019. If development continues at the same pace, the combination of fewer jobs available, aging millennials and stabilizing homeownership could lead to a slowdown in rent growth, Green Street Advisors is reporting.
Rent growth for 2018 was 3.1 percent, according to Yardi-Matrix. While rents stalled at the end of the year, the firm said demand is still strong and attributed any slowdown to seasonal fluctuations due to the colder weather.
Rent growth continues to be strongest in the West, Southwest and Southeast, with five of the top 10 metros located in California. The Urban Land Institute reported that rent growth was expected to be around 2.9 percent in 2018, then moderate to 2.5 percent this year and 2.0 percent in 2020.
3. Curb Appeal, Energy Features Will Matter More
More apartments are being constructed as eye-catching buildings with curb appeal. Renting has become an attractive long-term option for everyone from millennials to the baby boomer generation, and they all desire to live in a place they are proud to call home. According to the American Institute of Architects, this means modern facades with large expanses of glass, open floor plans and energy efficient features.
The National Multifamily Housing Council also noted that renters are weighing environmental factors, such as indoor air quality, as well as whether buildings have sustainable features and/or green certifications.
4. It's All About Modern Amenities
The NAA noted that flexible work and gathering areas are among the top amenities for 2019. As more residents work from home, semi-private work spaces that court telecommuters are becoming more important. The presence of food trucks, lockers for deliveries and all things related to pets, such as parks and spas, are also expected to top some renters' lists.
"Pets, packages and social events are still a big deal, and anything that makes a resident's life more convenient, including smart-home tech," Munger said.
According to the PwC and Urban Land Institute's recent emerging trends report, keyless entries and other tech features are becoming more expected, as the public becomes more comfortable with technology.
5. Gateway Markets Will Return
Gateway markets, including New York City, Washington, D.C., and San Francisco, have lost ground to smaller markets in recent years, but are expected to rebound this year, Green Street Advisors is predicting.
"Gateway markets' relative pricing power is expected to return in 2019, though at a much narrower margin than historically," according to the report. "In non-gateway markets, job growth is robust but slowing, and new supply and incremental pressure toward homeownership should weigh disproportionately on rents over the next five years."