What Investors Should Know About The State of The Apartment Industry
If you’re planning to expand your multifamily investments this year, it’s important to have a good understanding of the current state of the industry. By doing so, you’ll be able to make more informed choices about where to invest, how to invest, and if you should invest at all. To help you gain a better appreciation of the apartment and multifamily market this year, we’ve provided some of the most essential apartment industry statistics below.
General Industry Statistics
According to IBISWorld, a leading market analysis firm, the apartment rental industry is currently sized at $176.8 billion, with 1.3% market growth so far this year (as of March 2019). That should put the industry on track to equal the 3.5% growth it’s experienced each year from 2014-2018. There are currently an estimated 562,493 businesses in the apartment industry, employing approximately 852,750 people around the country. As the industry grows, both of these numbers are expected to increase in the upcoming years.
Apartment Construction and Development Trends
Throughout 2019, an estimated 280,000 multifamily units will come online across the U.S., a slight decrease from the 287,000 units that were delivered in 2018 and the approximately 317,000 units that were delivered in 2017. In 2018, the markets with the largest unit deliveries were the New York City metropolitan area, with 19,948 new apartments delivered in 2018, and the Dallas-Fort Worth metropolitan area, with 17,132 units delivered that year. These markets, as well as the Phoenix metropolitan area market, are expected to stay strong throughout 2019.
Urban vs. Suburban Markets
While apartment development numbers in urban areas remain strong, some experts believe that a lot of new demand will actually be in suburban areas. In fact, between 2016 and 2017, an estimated 5.2 million people across the U.S. relocated from major cities to suburban areas. For multifamily investors, this means that the most growth-oriented investments in 2019 and beyond could actually be located outside traditional urban centers.
Multifamily Loan Origination Trends
According to Freddie Mac®’s predictions, multifamily origination volume is estimated to expand to $317 billion in 2019, a nearly 4% increase from the approximate $305 billion of multifamily financing originated in 2018. Factors that can be attributed to this trend include consistent investor demand for apartment properties, as well as other market forces, including a strong economy, reasonable job growth, and low interest rates.
Vacancy and Absorption Trends
Overall market trends indicate that consumer demand for multifamily units will be strong throughout 2019, leading to net absorption. However, it’s estimated that rent growth may not be as high as it was in 2017 or 2018, and vacancy rates may increase slightly as well. Overall vacancy rates in the U.S., on average, have remained extremely steady, at 4.7%, since Q1 2018 (with some minor fluctuations during that time).
Interest Rate Trends
While some experts believe interest rates will begin to rise soon, they are still extremely low at the present moment. U.S. Treasury rates, including the 10-year and 5-year rates that are the basis for many multifamily loan interest rates, have fallen over the last 12 months. For example, in July 2018, the 10-year UST was 2.95%, while in July 2019, it had fallen to 2.08%. However, in contrast, the Federal Funds Rate has increased slightly over the same period, going from 1.91% to 2.38%.
What Do These Statistics Mean for Multifamily Investors?
Overall, we believe the current state of the market (as evidenced by the statistics above) indicates that it is an excellent time to invest in apartment properties. The national vacancy rate is still low, and the economy is seemingly doing quite well. While the delivery of new units is still high (though it’s fallen slightly), job growth means that demand is still high enough to avoid a large excess of supply. And, perhaps just as importantly, interest rates are still very low, which means it could be a great time for borrowers to take advantage and get into the multifamily market before rates rise once again.