Last week, members of the Commercial Defeasance team attended the RealShare conference in Miami. During the conference, over 250 CRE leaders discussed issues and trends related to the multifamily sector in the Eastern U.S.
It was clear that attendees wanted to know if a decrease in home ownership is a paradigm shift or a demographic shift. They also discussed how certain trends are benefiting the multifamily industry.
According to recent statistics, the U.S. homeownership rate fell to the lowest level in more than two decades. This has caused vacancy rates for rental homes to decrease. U.S. vacancy rates for rented homes fell to 7 percent in the fourth quarter, down from 8.2 percent a year earlier and the lowest since 1993.
While conference attendees discussed how the demand for apartments and rental homes are increasing in the Eastern U.S. – particularly in Miami (ranked #9 in the country) – it’s clear that this is a trend occurring throughout the U.S.
Millennials and those individuals who put off retirement as a result of the recession are driving demand for multifamily housing. They are both interested in greater flexibility (due to job opportunities or family issues) and prefer locations that are conveniently positioned near retail and entertainment centers. However, even though the demand for multifamily properties will easily absorb existing inventory, investors are concerned about overdevelopment.
Following are some of the most popular areas investors should consider in order to reap maximum returns and avoid any backlash from potential overdevelopment:
Nashville – the area’s robust job market has been attracting a lot of new Millennial residents, so the city is on track to outperform the national market in 2015. Marcus & Millichap projects that by year-end, multifamily properties in Nashville will have an average vacancy rate of 4.8 percent, with average effective rents of $998 per month. At the same time, average sales price per unit is forecast to be $72,800.
Los Angeles – the area’s year-end vacancy is projected at 3 percent and average effective rent at $1,842 a month. According to Marcus & Millichap’s research, prices in the city will likely reach $178,600 per unit.
Minneapolis – the city’s strong employment base and lack of new construction makes it a top area for the multifamily sector. By year-end, multifamily vacancy in Minneapolis should drop to 3 percent, while rents will average $1,068 a month.
San Diego – among the things San Diego has going for it is the “live-work-party” environment many Millennials crave. By year-end, rents will average a whopping $1,627 a month, while vacancy will be at 3.2 percent. However, property prices will still be below those in the Bay Area, which average $165,300 per unit.
Denver – an attractive job market combined with dwindling new construction should shore up Denver’s property fundamentals in the months ahead. Marcus & Millichap predicts that the city will likely see a vacancy rate of 4.3 percent by the end of the year, with average rents at $1,310 per month. Meanwhile, prices on multifamily assets should remain relatively affordable at $105,500 per unit.
New York – it is not much of a surprise that New York City, with its constantly surging population and a projected vacancy rate of 2.7 percent, has made the top list. With virtually non-existent vacancies and steady rent appreciation, New York apartments are primed for appreciation in the coming year. Average effective rents will likely reach $4,090 per month in 2015, while price per unit will average around $368,300.
In 2014, multifamily properties were the top category of commercial real estate defeased by Commercial Defeasance. In 2015, the firm predicts that this will continue to be the trend. Currently, the top geographic areas experiencing defeasance transactions include New York, California and Virginia. If you are considering selling or refinancing your multifamily investments, give us a call and we’ll explain how we help to Defease With Ease®.