Multifamily market rent declines in November reflected the normal seasonal fluctuation, are no cause for alarm, and demand remains strong, according to YardiMatrix’s Multifamily National Report (November 2018).
“Multifamily rent growth in 2018 stands at 3.1%, higher than most estimates coming into the year. Rents have stalled in the fourth quarter, a typical pattern, declining by $3 from their September peak,” Yardi Matrix said in a release.
Highlights of the multifamily market report
• U.S. multifamily rents fell by $2 in November, dropping to $1,419, while year-over-year growth fell by 10 basis points to 3.1%. Rents are down $3 from the peak of $1,422 in September.
• The small decline can be chalked up to normal seasonal fluctuation. Demand has remained strong as the occupancy rate has stayed stable for the last six months despite the growth in supply in many metros.
• Rent growth continues to be strongest in the West, Southwest and Southeast. Las Vegas and Phoenix have the highest rent growth, and five of the top 10 metros are in California.
Demand continues to be the main driver of the robust market, as new household formation helps fill new multifamily supply. “It’s a testament to the economy’s strength that most of the metros with the highest supply pipelines are maintaining occupancy rates and moderate rent growth,” the report says, citing:
Year-over-year rent growth leaders for November were:
• Las Vegas
• California’s Inland Empire
What is the outlook for capital in multifamily?
“One of the strengths of the multifamily market in recent years is the availability of capital, especially debt,” Yardi Matrix says in the report.
“Despite some concerns about the durability of the economic expansion, the healthy capital environment should continue through 2019. If anything, the worries might be working in favor of multifamily, as lenders are increasingly looking to book loans on less risky assets and property types. Plus, Fannie Mae and Freddie Mac have dominated the apartment debt market since the recession, which makes other lenders more eager to originate multifamily loans.”
• Capital trends in commercial real estate are likely to remain healthy, and multifamily stands to benefit.
• Lenders are discriminating among property types and trying to incorporate less risky asset classes into portfolios. That means more multifamily and industrial and less retail and niche property types.
• Lenders are acting much differently at this stage of the cycle than the last time around, when loan terms became ever more aggressive until the market collapsed. In the next downturn, debt sources will have much less capital at risk.