Multifamily Sector Shows Signs of Recovery
While commercial real estate continues to struggle through the current downturn, some initial signs of improvement are emerging in the multifamily sector. As vacancy rates gradually improve , rents are increasing and concessions are tightening (see chart below). These emerging trends are causing a noticeable uptick in investor demand and a downward pressure on capitalization rates.
According to the current data, it appears that the apartment sector will be the first to recover as the economy begins its turnaround . There are a number of factors contributing to this budding recovery:
- Unlike other sectors, multifamily did not experience overbuilding in most markets.
- The lack of construction financing and dearth of new projects will result in few units coming online in the near future.
- Many people are electing to rent rather than own given the current state of the housing market.
- Fannie Mae and Freddie Mac continue to provide liquidity which is lacking in other sectors.
Investors should be cautioned that challenges remain and any sustained increase in demand will depend on a recovery in the employment market. Even if unemployment does moderate as expected, rental increases for apartment owners will be gradual. Nevertheless, many real estate professional believe that we may be seeing the bottom in multifamily asset prices and that the time is ripe to execute acquisitions.
