Will Multifamily Continue to Outperform in 2017?

Can the recent remarkable run in apartment demand and property values continue into 2017?

Last year, some experts predicted the record number of new units expected to come online in the multifamily sector in 2016 would cause rents to moderate, vacancies to increase, and sales to dip below the record high levels of 2015. But that didn't happen.

Multifamily continued to outperform other property sectors in 2016. Sales volume maintained pace throughout 2016, and per unit prices increased again in the fourth quarter after remaining flat most of the year. Average rental rates were up 3.9% YOY 3Q16 and multifamily had the lowest vacancy rate of all commercial real estate property types during the same period.

While the sector may be due some moderation given it's remarkably long run, CoStar apartment research strategist, John Affleck, said, "the forces that produced the best multifamily market in recent memory remain largely in place" for 2017. CoStar Group also projects vacancy rates for 2017 and 2018 to remain below the 15-year average vacancy rate while also projecting rental rate growth to remain above the 15-year average growth rate.

Freddie Mac Executive Vice President and Head of Multifamily Business, David Brickman, believes, "the fundamentals the market tracks, including values and rents, are likely to continue growing, albeit at a more moderate pace." He also thought properties were being priced fairly in most markets, and that rents would likely rise with the exception of a select few coastal markets.

Carlos Flores, Principal of Stronger Capital and Senior Director of Old Capital Lending based in Dallas Texas, said they arranged more multifamily loans YOY, and expects lending in 2017 will outpace last year. He pointed out the results of an annual survey conducted at the RealShare Apartments conference, where 51% of multifamily industry survey participants said they expected to be net buyers in 2017 vs 20% net sellers. Carlos closed by saying he believes multifamily investors can make money in any market as long as they adapt their investment strategies to changing market conditions, and that he expects to buy in 2017 as well.

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