2019 Forecast: What’s Up with Multifamily Real Estate?

>The year just past was another good one for the multifamily housing market, according to all reports. But what lies ahead?

According to most market analysts, three perils will exert influence over what occurs in 2019:

• Interest Rates and Available Lending
• Supply
• Development Concerns

With continued volatility both on the political scene and in financial areas, even the experts tend to disagree somewhat on the forecast. Recent speculation about additional interest rate hikes may—or may not—have been put to rest. It seems too early to tell yet whether there is a continued balanced suppy of new apartment units or construction already underway will lead to an oversupply in specific markets. And, finally, the “known unknowns” in the marketplace continue to plague multifamily development.

Continuing labor concerns constitute a risk for builders, developers and investors. Increasing cost of raw materials due to federal tariffs is another concern, with some prices showing a 10 percent year-over-year rise. Affordability continues to plague the market, with especially severe implications in some cities.

For informational purposes only. Always consult with a licensed commercial real estate professional before proceeding with any real estate transaction.

Correction or Crisis?

While most experts point to uncertainty as the primary expectation for coming months, most also agree that the multifamily market can expect some price drops and current high-priced markets will almost certainly experience a correction. While real estate in general faces a number of unique challenges, the amenity-driven big-city rental scene is unsustainable in the view of a few analysts.

But it’s not just big cities that face affordability crisis. Based on available statistics, more than 50 percent of renters spend more than 30 percent of income on rent, and some projections say that by the year 2030 more than 4.6 million new rental units must be ready. The picture isn’t any brighter for home ownership. HUD records say that 12 million American pay more than half their income just for housing, and the crisis extends across the spectrum, from big cities and suburban areas to small towns. It is indeed considered a crisis of unique proportions; housing affordability has dropped by 15 percent just since 2015.

The Outlook for 2019 and Beyond

The patchwork quilt of investment opportunity does not offer a clear picture of what will occur across the nation, but it is clear that opportunity exists in niche markets, and in smaller communities in need of quality, affordable multifamily housing, whether it’s the condo market, apartment leasing or mixed use development.

Senior care and assisted living facilities, as well as student housing, are viewed as strong contenders for continued investment. In some areas, including San Francisco and high-priced Boston, New York City and Houston, a moderation in price is viewed as desirable, and the resulting market adjustment must be viewed favorably, although in the short term it may seem like a setback. Others point to the possibility of a coming recession with nationwide effect, but even that dire prediction is countered by uncertainty and a shifting timeline.

There is hope that greater efficiencies through technology, a labor market buoyed up by new training programs and public-private partnerships and continued economic good news will lead to better performance in Anoka County commercial real estate sectors. Perhaps only the passage of time will tell.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.