The Discussion: The State of the Multi-Family Market
In a recent episode of America’s Commercial Real Estate Show, the host welcomes Carl Whitaker, Director of Research and Analysis at RealPage, to discuss the state of the multi-family real estate market. The conversation covers a range of topics, from recent performance trends to future projections and emerging strategies within the industry. It’s important to note that while the discussion provides a national perspective on multifamily commercial real estate, specific market conditions, such as those in Miami, may exhibit variations where certain elements discussed could apply differently or even not at all for the Miami / South Florida apartment property sector.
Multifamily Rent Growth and Market Performance:
The conversation begins with an overview of the multi-family market’s performance in 2023. Whitaker highlights the interesting dynamics observed toward the end of the year, noting a departure from the consistent rent increases seen in previous quarters. The rent growth for the year was around seven percent nationally, with some notable variations between top-performing markets and others that showed more stability.
Normalization of Market Patterns:
Whitaker explains that the moderation in rent growth and occupancy levels observed in the second half of the year signals a return to more normal market patterns. While the shift may seem drastic compared to the previous year, it aligns with historical trends. Despite the adjustment, the overall occupancy rate remains high, indicating that the market is still robust.
Interest Rate Increases and Future Projections:
The conversation delves into the impact of interest rate increases by the Federal Reserve and the ongoing fight against inflation. Whitaker shares insights into early indicators for the first quarter of 2023, suggesting that the market is showing signs of normalcy. He anticipates a slower pace of rent growth compared to the previous two years, with a move toward more typical patterns.
Class A, B, and C Multifamily Property Segments:
Discussing the performance of different property classes, Whitaker acknowledges a previous misjudgment regarding Class A and Class B properties. Class A properties, initially leading the market, are expected to moderate as construction ramps up. Class B is seen as gaining stability, while Class C may face challenges with affordability, rent collections, and inflationary pressures.
Multifamily Market Trends and Concerns:
Whitaker reflects on the insights gathered from the NMHC (National Multifamily Housing Council) annual convention. He notes that while there is still an appetite for apartment investment, there remains a gap between asking prices and actual transaction values. The convention also revealed an unexpected interest in Midwest markets due to their stability and relative affordability.
Challenges and Strategies for Multifamily Property Owners:
The discussion shifts to the challenges faced by property owners, including labor and staffing issues, budgeting practices, and concerns about a potential recession. Whitaker highlights the need for a focus on expense ratios, given the slowdown in performance, and emphasizes the importance of monitoring broader economic indicators.
Marketing and Management Strategies:
Whitaker touches on changes in marketing strategies, emphasizing the increasing importance of marketing spend, intelligent management, and addressing challenges like pay stub fraud. He also mentions a comprehensive strategy book compiled by RealPage, offering insights from industry executives on shifting market conditions.
Housing Supply and Demand:
The conversation concludes with a brief discussion on the housing supply-demand imbalance, particularly in the single-family housing market. Whitaker notes the need for more affordable housing in the starter home category to meet the demands of a diverse population.
Closing Thoughts:
As parting advice, Whitaker encourages industry participants to consider historical context when evaluating market performance and to reset expectations based on the typical levels observed in the past decade. The discussion provides a comprehensive overview of the multi-family market, touching on various aspects influencing its current state and future trajectory.