- March 26, 2019
- Posted by: Sandy Fliderman
- Category: Insights
What to Expect?
“Multifamily real estate has been riding high for some time, and everyone is trying to figure out whether 2019 will be more of the same. The answer depends largely on the market segment and location: Real estate professionals tend to agree that there is no such thing as a national housing market. Each metro and underlying submarket is different.”
“Rental markets across the Sun Belt, in particular in places like Texas, Florida and Arizona, capitalized on outsized population and employment growth. Migration from the northern markets into the southern markets has fueled demand for apartments, which is a trend I expect to continue.”
“The reality is that multifamily remains a flight to safety for most real estate investors. While significant volatility plagued most asset classes throughout 2018, multifamily acquisitions actually increased by 12.1% to $173 billion, according to CBRE’s fourth-quarter report.”
“New supply will remain elevated through 2019 and into 2020 but rents and vacancies will continue outperforming historical averages due to robust demand related to the rising cost of homeownership, changing demographics and consumer preferences.”
“Multifamily origination volume is projected to grow to $317 billion in 2019 driven by solid market fundamentals and strong investor demand for multifamily properties. The 2019 figure will exceed the $305 billion in originations estimated for 2018 by 3.9 percent.”
“Cap rates have fallen slightly over the past few quarters despite rising interest rates, and spreads remain near the long-run average. We anticipate cap rates may rise in 2019 if Treasury rates increase.”
“2018 recorded the largest annual increase in commercial and multifamily mortgage debt outstanding since the Great Recession, and the largest increase in multifamily mortgage debt on record,” said Jamie Woodwell, MBA’s Vice President of Research & Economics. “Growth in multifamily mortgage debt made up almost half the total increase in debt outstanding.
“In percentage terms, REITs recorded the largest increase in holdings of multifamily mortgages (6.1 percent), and private pension funds saw the biggest decrease (5.6 percent).”
Where to invest?
The Texas Triangle refers to an area encapsulated by Dallas, Houston and San Antonio, which also contains Austin in the center. These are four of the fastest growing cities in the U.S. and represents a huge area with 17 million people spread over 58k square miles.
“Even as the U.S. economy headed into a recession in 2008, the Triangle metros led the nation in job creation with Houston topping the list, at 42,000 new jobs. Of the top 100 metros, Houston, Dallas-Fort Worth, San Antonio and Austin were among the 10 largest for job creation for 2008. While the vast majority of America is just now bouncing back from a stagnant economy, the Texas Triangle flourished over the last 8 years.”
“Taking a closer look at the numbers, this region offers some compelling facts:
-Exploding population growth that should last for decades.
-A robust jobs market that shows no signs of letting up.
-Multifamily inventory that is not keeping up with demand.”
“Texas real estate continues to impress, as evidenced by international capital flowing into the DFW multifamily market. Among the most active in our market are Canadian, German, and Israeli investors. It is also worth mentioning that two of the top five best-performing cities of 2018, according to the Milken Institute, are two of the markets in Texas”.
“We observed that in the last four quarters, the metro basically absorbed all the units that were delivered. The high-rise market alone has a very significant pipeline as 12 buildings with approximately 3,000 units were just completed, and an additional 17 projects with about 4,000 units currently under construction.”