From The Research Department – CoStar 2018 U.S. Multifamily Outlook

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CoStar recently held an event in which some of their top real estate experts presented a detailed overlook of the current and projected state of the Multifamily market, both locally and nationally. Below are a few central takeaways:

  1. The Golden Age of Multifamily continues to evolve: Due to the increase in the “top of the market” construction, pressure continues to mound on luxury markets. With multifamily properties offering a mixed-use, a notable rent premium can be applied, in turn allowing high rents in typically low rent locations. In addition to this, the housing supply is normalizing, leading to higher demand for multifamily assets.
  2. At the highest levels, commercial real estate density places a small role in total rent growth: The keys to projecting rent growth in high density commercial real estate locations are simply the location’s amenities. Desired areas with high traffic are often coupled with amenities such as coffee shops, fitness centers, grocery stores, shopping centers, and nightlife, thus increasing the demand and overall rent of these properties.
  3. Drop in homeownership = more renter households: This takeaway may appear to be intuitive, but it is vital knowledge for millennials. The only two generations that are expected to experience renter growth are people that fall in the middle-aged and 65 and older demographic. Due to the drop-in homeownership, there is a significant lack of starter and low price point homes on the market. This is forcing the middle-class population to continue renting opposed to purchasing.
  4. Affordability = percentage of people within a market who can actually afford housing within that market: This statistic varies greatly on a national level, with Boston coming in at 54%. While this is due in part to the earnings ceiling issue, rent growth has shrunk in the higher income markets but has increased in the suburbs and lower income submarkets. Again, this is a direct correlation to all of the new construction taking place in Boston.
  5. Multifamily transaction volume is up from 2015: Though office and retail transaction has decreased 17% since 2015, the multifamily sector continues to remain strong. While this has proven to be lucrative for several multifamily owners and landlords, ability to perform smaller deals at higher price points, is causing concerns of overpricing in the B markets.

Overall, Multifamily assets will remain to be a hot commodity for years to come. With continuous construction and the looming possibility of Amazon’s second headquarters, multifamily properties should expect to sustain high levels of demand and interest.

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