As 2017 comes to a close, year-end hindsight will likely cause many multifamily real estate investors to change their focus in 2018. The primary markets overheated in 2017, especially in the luxury segment. There were more than enough expensive apartments in New York, Los Angeles, San Francisco, Chicago, Boston, and Washington, D.C. in the past 12 months, and that oversupply has set the stage for a slower, steadier emerging market.
At the same time, the 2018 multifamily real estate market is shaping up to be somewhat more nuanced than that of 2017. As investment centers shift across all markets, having expert advice becomes more valuable.
Multifamily Investment Moving to Smaller Cities
Recent trends in the real estate market were foreseen well in advance, since it became clear early in 2017 that multifamily real estate development starts had peaked nationwide a year earlier. It’s predicted that new apartment deliveries will peak in 2018 and then decrease in line with construction activity. According to one report, apartment deliveries will decline by 11%, or 425,000 units, in 2018, compared to 2017.
This slowdown is a normal market process, and no cause for concern for investors, however. “We’re not in for Armageddon,” a senior financial adviser wryly assured the authors of the 2018 Emerging Trends in Real Estate report, a joint undertaking of PwC and the Urban Land Institute (ULI). In general, multifamily housing prospects remain strong, especially in secondary markets, the report concludes. The top five cities set to receive real estate investment in 2018 are:
- Salt Lake City
- Dallas-Fort Worth
These cities are growing rapidly, thanks to their thriving economies that are attracting young professionals. Investors are taking notice.
Several other rapidly growing cities, such as Sacramento, have been identified as continuing multifamily growth markets. The good health of Phoenix’s market has been noted, as has the exceptional long-term prospects of the San Antonio and Raleigh markets.
Primary Markets Point to Larger Real Estate Investment Trends
The country’s six primary markets are not the only ones that have overheated. According to the PwC-ULI report, there are “a dozen or so overbuilt urban cores.” In response, renters and investors have shifted their attention from primary to secondary urban centers, and to more suburban settings.
This movement away from city centers is normal for sprawling metropolitan areas. This is the case in Phoenix, for example, as well as Dallas-Fort Worth, where suburban Plano is expanding rapidly. The Atlanta suburbs are also developing rapidly due to economic pressures driving residents out of the city’s central districts.
Another result of the high-priced urban luxury market is increased interest in Class B and C properties. This was noticed early, so the multifamily Class B and C markets have been gathering momentum for most of 2017. Affordable housing had a 1.7% national vacancy rate in Q1 2017, while the overall rate was 4.3%. Charlotte and Atlanta are among the cities with active value-add markets. Adding common area amenities could help increase ROI significantly.
Finding the Right Multifamily Investment for You
Plenty of new opportunities will emerge as the market evolves. Investors may find themselves venturing into new cities in new regions in 2018, so reliable guidance is more important than ever.
With nearly 100 properties in 11 metropolitan areas, CWS Capital Partners is well positioned to assist you in acquiring an existing investment property, repositioning or developing a property, or conducting a 1031 exchange. We can be your trusted partner throughout these processes.
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