The Discussion: Navigating Multifamily Real Estate Trends Nationally; Insights from Dr. Larry Souza
In the ever-evolving landscape of commercial real estate, multifamily properties stand as a resilient and sought-after asset class. In a recent segment of America’s Commercial Real Estate Show, host Michael Bull welcomed Dr. Larry Souza, Managing Director at Capital Brain and Senior Investment Economist and Advisor with Pillar6 Advisors, for an insightful discussion on the current trends and future prospects in the multifamily sector.
This discussion provides insights into multifamily property on a national scale; it is not specific to Miami.
Peak Performance and Shifting Dynamics
Dr. Souza began by painting a picture of the multifamily market, highlighting key trends and shifts in performance. He noted that rent growth peaked around 2015-2016, while cap rates, after hitting bottom, are now experiencing a slow rise, signaling a shift away from cap rate compression as a driver of price appreciation. Additionally, occupancy rates, having reached their zenith, are now showing signs of moderation.
One notable trend is the slowing pace of construction activity, with a significant number of units being delayed or pushed into the future. This cautious approach to development, compared to historical cycles of overbuilding, suggests a more balanced market response to demand dynamics.
Sales Volume and Market Dynamics
The conversation turned to sales volume, with Dr. Souza referencing data from Real Capital Analytics showing a decline in August sales compared to previous years. This deceleration in sales volume, coupled with factors such as inventory scarcity and historically low cap rates, indicates a late-cycle market phase.
Impact of Rising Rates and Economic Indicators
Addressing the impact of rising interest rates, Dr. Souza emphasized the resilience of multifamily properties in the face of economic fluctuations. With access to favorable financing options through government-sponsored entities like Fannie Mae and Freddie Mac, multifamily investments benefit from stable fundamentals, including strong demand driven by demographic factors.
Demographic Shifts and Market Opportunities
Discussing demand drivers, Dr. Souza highlighted demographic trends, particularly the rising number of renters among younger age groups. Factors such as student debt, housing affordability, and lifestyle preferences contribute to the sustained appeal of rental properties, especially in urban centers and growth poles.
Identifying Promising Markets
In terms of market outlook, Dr. Souza favored supply-constrained submarkets over commodity markets. He cited examples such as Sacramento, Las Vegas, and Dallas, which have shown robust rent growth late in the construction cycle. Coastal markets with solid fundamentals also present attractive opportunities, albeit with lower cap rates and higher prices.
Strategic Considerations for Investors
As the conversation drew to a close, Dr. Souza offered strategic advice for multifamily investors. Emphasizing the importance of due diligence and conservative underwriting, he urged investors to carefully select submarkets, assets, and partners to navigate the late-stage market cycle effectively.
Looking Ahead
In summary, Dr. Souza’s insights shed light on the nuanced dynamics shaping the multifamily real estate landscape. While challenges such as rising interest rates and supply constraints loom, opportunities abound for savvy investors who understand the market fundamentals and adopt a prudent approach to asset selection and management.
As the multifamily market continues to evolve, staying informed and adaptable will be key to capitalizing on emerging trends and maximizing returns in this resilient and dynamic sector.
Dr. Souza
The guest, Dr. Souza, has 26 years of experience within the commercial real estate and financial services industries. Prior to his working with Pillar6 Advisors he worked for Charles Schwab Investment Management as a Managing Director of its Index Services and as Chief Economist and Managing Director of Global Real Analytics.
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