One of the more enjoyable aspects of multifamily real estate investment is conducting research, especially when strategizing and building a portfolio of properties. The real estate market is shaped by the perpetual influences of demographics, economics, finance, law, and current affairs. Multifamily housing market analysis takes these factors into account in a long-range view that’s tempered by some of life’s biggest decisions, including moving for employment and retiring. Current changes in the multifamily real estate markets of the Sunbelt—the swath of the Southern United States characterized by warm weather—are vivid depictions of the larger forces at work in the country. Investors are watching closely as populations and opportunities grow in the south.
Sunbelt Multifamily Market Bucking Trends
The growth drivers in the Sunbelt are well known. Young professionals priced out of the housing markets of traditional economic centers, such as New York, Los Angeles, and San Francisco, are powering emerging centers of business and technology growth. This fountainhead in the Sunbelt is no coincidence. Southern cities have newer infrastructure, a lower cost of living, and less poverty than the northern cities young migrants are leaving behind. Analysts expect pent-up millennial demand for housing to remain for at least six years.
These young managers and engineers might incidentally move in next to their grandparents, as an additional wave of Sunbelt population growth is coming from baby boomers. The so-called “graying of America” is leading to lifestyle changes that crucially involve warm weather and smaller living spaces. The 2008 recession slowed the movement of seniors from northern cities to inviting southern locations, but that trend has picked up again. Retirees are downsizing and looking to be unencumbered by the responsibilities of home ownership and the hardships of cold northern winters.
The new waves of migrants drawn to the Sunbelt by low housing costs are driving rents up, however. While a recent report from Yardi forecasts a modest 2.5 percent increase in average rent nationally in 2018, many cities in the southern U.S. can expect larger rent increases. Yardi predicts a 5 percent increase in Phoenix, for example, a 4.4 percent rise in Dallas, a 3.7 percent increase in Atlanta, and a 3.5 increase in Raleigh. In each case, there is improvement over 2017 rent performance, which reflects the healthy economies in those cities.
All of this is occurring in the face of a marked slowdown on the national multifamily real estate market. Yet, where the market is good, it is very good. As Yardi pointed out in its report, consumer confidence is at record high levels, which is a positive sign for the crowded luxury market.
Job creation, while having peaked in early 2015, remains robust nationally and is stimulating the housing market in two ways. First, new jobs create economic stability and prosperity. Second, more employment opportunities lead to construction labor shortages as construction workers find more desirable employment. Such shortages, in turn, slowed down deliveries of new apartments in 2017 and will continue to do so in 2018, giving the market more time to absorb the large new supply in the pipeline and, thus, keeping occupancy levels up. Regardless of that, occupancy fell 40 basis points to 95.3 percent nationwide in 2017, and it is likely to decline even more in 2018.
Time to Invest in the Multifamily Housing Market in the Sunbelt
Many cities in the Sunbelt have vibrant multifamily real estate markets. The high level of investor confidence can be seen, for example, in the purchase in January 2018 of a portfolio of 28 properties with 8,578 units in four southern states by the Carroll Organization and PGIM Real Estate. The multifamily market in the sunbelt was described as “…a segment of the market in which we believe there will be significant growth over the coming years that will fuel robust demand,” by an executive involved in the deal.
While conditions vary from city to city across the U.S., there are ample investment prospects in the Sunbelt. In the cities and their suburbs, development and value-add repositioning opportunities can be had—while the supply lasts.
CWS Capital owns properties throughout the Sunbelt. Our experts know the market well and can guide you in selecting a property that meets your investment goals. This might include making a 1031 exchange.
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The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.
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