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Investors/Experts Expect Multifamily To Outperform

Despite the slew of headwinds facing the broader real estate industry, investors, economists, and real estate experts maintain a positive outlook on the years ahead, especially for the multifamily asset class.  The prospect of falling inflation and interest rate stability, paired with favorable economic indicators, have led to a rise in consumer confidence when compared with levels a year ago. Additionally, consumer sentiment, which often strongly aligns with demand for apartments, has steadily trended upwards since July 2022. Additionally, consumer sentiment, which often strongly aligns with demand for apartments, is also trending upwards.

Acquisition Opportunity

While this positive news for the multifamily asset class, it is more suggestive of a positive outlook for acquisition opportunities rather than new ground-up development. In an interview with GlobeSt, David Fletcher, Excelsa Properties Managing Director and Head of Acquisitions, stated “Returns on cost do not support developing, in the context of higher projected exit cap rates, trended rents, insurance expenses and real estate taxes. Importantly, buying is cheaper than building.” He states that, in the world of value-add acquisitions, “Projects that continue to show no signs of slowing down are focused on reducing utility/operational costs, which includes window and door replacements and smart lighting and plumbing fixtures retrofits.”

Optimistic Developers

On the flip side, strength in the economy has supported household formation, while high interest rates and the future possibility of house prices retracting have made homebuying less appealing than ever. Young American workers are confident in their financial positions and their job security, which has led to more of them leaving their homes to live on their own, or with roommates. For these reasons, developers are not entirely inactive, and those who can still make a project work are more optimistic than ever about its future.

Outlook By Numbers

According to a study conducted by CBRE of over 1,400 commercial real estate investors.

Where to invest: THE SUNBELT

  • 36% of participants said they would target Dallas/ Ft. Worth
  • 32% of participants said they would target Austin
  • Followed by South Florida, Nashville, and Raleigh-Durham

What to invest in: MULTIFAMILY

  • 30% of participants, up from 23% the previous year, preferred multifamily investments (37% among investors in the Americas).
  • Multifamily was named the most preferred property type for the first time in the survey’s seven-year history.

In conclusion, with the winds of falling inflation and stable interest rates at our backs, and a surge in consumer confidence, the multifamily sector is poised for continued growth. The economic strength driving household formation and the hesitancy surrounding homebuying further bolster the multifamily market’s appeal. Investors are increasingly drawn to the Sunbelt, particularly cities like Dallas/Ft. Worth and Austin, making multifamily investments their top choice. With Wall Street’s predictions favoring rate stability, the multifamily sector appears to be on a solid path toward outperformance. In these uncertain times, it’s clear that multifamily remains a bright spot in the real estate landscape, offering promising opportunities for those ready to seize them.

Sources: CoStar, GlobeSt, GlobeSt, GlobeSt

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