In 2015, 306,000 new multifamily units were added to the U.S. market, according to Freddie Mac—the highest number since 1989. The figure reflects the high demand for multifamily space. But although 2016 is expected to continue with some strong momentum in the multifamily sector, a handful of markets will have to be watched cautiously. In these markets economic indicators, including employment and wage growth, are stagnating and real estate indicators such as vacancy and rent growth are not in tune.
Analysts are watching markets that rely on the oil industry especially closely to see just how deeply falling oil prices will affect demand for multifamily.
We compiled a list of top five markets where selling off multifamily assets might make sense, using findings from online real estate marketplace Ten-X’s Multifamily Market Outlook, along with consulting firm PwC’s Emerging Trends in Real Estate 2016 survey and Freddie Mac’s Multifamily Outlook 2016 report. We paid particular attention to rates of employment, vacancies, rental growth and other market indicators.
Markets in the Northeast region make up the majority of the “sell” recommendations in 2016 ratings given by market experts. Although the Northeast historically commands higher price tags on real estate assets, unemployment is above the national average and rent growth is below the national average. Vacancies are expected to creep up to the low-5.0-percent mark by 2019, according to Ten-X. PwC gave the Northeast region an average outlook score of 45, compared to 33 for the West region and 37 for the South.
Boston
Although historically a strong market, vacancies hovering over 0.5 percent and recent growth in the unemployment rate mean this is a market that requires scrutiny. According to Ten-X reach, multifamily vacancies in Boston will reach 8.4 percent by 2019. PwC gives it only a 41 percent buy rating recommendation for multifamily properties and a multifamily investment prospect score of 3.7 out of 5. In fact, Boston barely made PwC’s list of top 20 cities for multifamily investment, coming in at #16. Freddie Mac researchers note Boston will experience high vacancy rates, above the history average, and slow income growth. That agency forecasts Boston’s rent growth to be at just over 3.5 percent.
2015 rent: $1,982 (Ten-X)
2019 rent: $2,189 (Ten-X)
Unemployment: 4.1 percent (U.S. Bureau of Labor Statistics)
Miami
Miami made the cut as a sell market for its stagnating rates of growth across both economic and real estate indicators. Ten-X forecasts an increase in vacancies to 7.8 percent by 2019, compared to 5.0 percent in 2015. PwC gave Miami a lukewarm prospect rating for multifamily investment, at 3.35 out of 5. And Freddie Mac projects rental growth of only 3.5 percent for the city.
2015 rent: $1,240 (Ten-X)
2019 rent: $1,359 (Ten-X)
Unemployment: 5 percent (U.S. Bureau of Labor Statistics)
Philadelphia
Excess supply looms for Philadelphia, and vacancies are slated to rise to 6.2 percent by 2019, from 3.8 percent in 2015, according to Ten-X. Meanwhile, employment growth is trailing behind the national average. The city received a 3.5 investment prospect score from PwC, however, marking somewhat of a dissension with Ten-X. And Freddie Mac predicts rent growth for 2016 to reach 4.5 percent.
2015 rent: $1,167 (Ten-X)
2019 rent: $1,286 (Ten-X)
Unemployment: 4.1 percent (U.S. Bureau of Labor Statistics)
Northern New Jersey
Being near a thriving metropolitan region is not helping Northern New Jersey’s multifamily market. Unemployment higher than the national average is taking its toll, slowing economic growth. Ten-X researchers contend vacancies will be above 5.0 percent by 2019. But PwC still gives the region a multifamily investment prospect score of 3.86, and Northern New Jersey made the firm’s top 20 rated markets for multifamily investment, with a 44 percent buy recommendation, beating Boston.
2015 rent: $1,673 (Ten-X)
2019 rent: $1,832 (Ten-X)
Unemployment: 4.4 percent Newark; 5.0 percent Bergen County (U.S. Bureau of Labor Statistics)
Pittsburgh
Low gas prices are affecting employment prospects in this city. And vacancies are expected to jump by 2.0 percent by the end of 2019, from mid-3.0 percent to over 5.0 percent, according to Ten-X. PwC researchers agree that Pittsburgh may not be a good bet for multifamily investments right now, only giving it an investment prospect score of 3.2 out of 5. But Freddie Mac researchers contend Pittsburgh will see rent growth just under 4.0 percent.
2015 rent: $924 (Ten-X)
2019 rent: $1,025 (Ten-X)
Unemployment: 4.3 percent (U.S. Bureau of Labor Statistics)
