Will 2018 Be a Good Year for Multifamily Housing?

Will 2018 Be a Good Year for Multifamily Housing?

On 04, Jan, 2018

2017 was a good year for national multifamily housing. In the summer, the national vacancy rate stood at just 4.4 percent amid a strengthening job market, lower unemployment rate, higher cost of homeownership, and a modest but noticeable growth in household income.

Now, at the beginning of 2018, it’s prudent to look ahead to see if the upcoming 12 months will be as good as the preceding 12 months – or if the market will soften as some analysts have predicted.

Predicting the Future of Multifamily Housing

One forecast – the 2017 ULI Consensus Forecast – predicted that occupancies will rise from the then-projected 5.2 percent rate at the end of 2017 to 5.3 percent in 2018 and 5.4 percent in 2019. The same forecast predicted that rent growth – while still present – would slow, plateauing at two percent per annum for the next two years.

But even if the market does soften nationwide, the market in specific areas may actually improve. That’s because markets vary widely. One market in one part of the country may be significantly stronger or weaker than another market in another part – or even in the same region.

Case in point: downtown, major urban multifamily housing has softened because the price point in many markets has risen above the market’s ability to meet supply or to support higher rents. That has resulted in something akin to a housing glut in some metro areas, particularly in the city core.

However, Birmingham’s urban core has actually seen significant growth in multifamily housing that is supported by demand, particularly in mixed-use development. This is due to a variety of factors, but that’s the point: different markets have different factors in play that may or may not be related to the overall national trends.

An Optimistic Outlook

There are plenty of reasons to think that urban and suburban multifamily housing in Alabama will be stronger in 2018 than in 2017. For starters, there’s room to grow. Prices aren’t so high as to restrict development, and the housing market isn’t favorable to buyers. Population growth is a positive; Alabama is adding people, not losing them, and they’re mainly moving to metro areas, thus fueling the surge in urban commercial real estate.

If Alabama metro commercial real estate follows national trends, the focus on urban core development will eventually move to suburban development, as was the case with Florida’s commercial market. In some markets – namely Birmingham – that trend has already happened except in reverse, as is the case with downtown revitalization initiatives.

One harbinger of a softer market in Alabama: concessions. When multifamily units start to offer serious concessions, and get into a concession or price war, then that’s an indication that there’s too much supply. So far, in downtown multifamily housing throughout the state, that hasn’t been the case, although one could argue that some markets are oversupplied.

All in all, 2018 should continue the positive trends we saw in multifamily housing in 2017. Developers and agents should keep an eye on trends to get in front of a softer market if and when it begins to happen in 2018, but prospects look good in most state markets.

The Alabama chapter of CCIM provides skilled commercial real estate agents with the Certified Commercial Investor Member (CCIM) designation, which is the highest level of certification and knowledge in the industry. Contact Alabama CCIM to find a qualified CCIM designee for your next project.

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