Multifamily Market to Remain Strong in 2019 Amid Demand for Rental Units and Investor Optimism

DALLAS, TX - After posting significant gains in 2018, the U.S. multifamily market is expected to show continued strength this year, amid swelling demand among younger adults for rental units and investor optimism in this market sector, according to BBG, a leading commercial real estate due diligence firm.

Last year, the multifamily market saw dramatic growth, with a 15% jump in apartment transactions totaling nearly $168 billion, an industry report said. This year, an estimated 280,000 multifamily units will be completed, slightly down from 290,300 units in 2018, though it still reflects a healthy market.

One of the biggest factors fueling this demand is more young adults residing in multifamily properties. This has been attributed to various reasons, including high debt levels incurred among this age group, the desire to be mobile and flexible, the lack of affordable single-family home ownership options -- particularly in metropolitan areas -- and a preference to live in or close to urban cores.

Rents for multifamily housing have been steadily rising due to the increased demand.

The average asking rent for multifamily units across the country rose nearly 5% in 2018, or $1,441 per unit, from the end of 2017, according to one research report, adding that the fourth quarter of 2018 was the 36th consecutive quarter of growth in rental rates.

While the vacancy rate for multifamily units ticked up slightly to 4.8% in the first quarter of 2019 from 4.7% at beginning of 2018, the report said, the rate was still significantly below 8% posted a decade ago.

Existing multifamily properties have increased in value as it is more expensive to build more product as a result of rising new construction costs, including labor, materials and equipment. Value add properties are in high demand where moderate to significant renovations can increase rents significantly.

New trends in multifamily living have emerged during this period of growth, such as vacant department stores being repurposed for apartment rentals and the proliferation of co-living buildings in major cities. New amenities and finishes are being added in all classes of properties, including added attention to pet amenities, common areas that encourage connectivity, and various parking features including electric charging stations, bicycle storage, motorcycle parking, and shared car services located on-site.

Mary Ann Barnett, MAI, BBG Multifamily Practice Leader and Managing Director, commented: "In 2018, multifamily housing had a banner year as a result of a robust economy, a continuing trend of a younger generation continuing to migrate to urban areas and increased investor demand for this asset class. We anticipate that multifamily will remain stable in 2019 as underlying market fundamentals continue to support this market."

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