The multifamily market saw considerable growth this past year, posting strong gains in positive net absorption and substantial rental increases in major metros across the United States.
National occupancy rates surged to 95.2 percent, and annual effective rent growth hovered above 3.7 percent in the second quarter of this year, indicating a healthy appetite for multifamily, according to a recent report by Axiometrics.
That said, as we close out the end of the third quarter, many are wondering how the multifamily market will fare for the remainder of the year and which markets are poised for the most growth. Based on strong employment gains, rent growth and quality of life, here are the top five multifamily markets that demonstrate the most potential for owners and investors in the fourth quarter and well into 2017.
Max Sharkansky is Managing Partner at Trion Properties, a private equity investment firm that primarily acquires value-add real estate properties with an emphasis on multifamily and currently has more than $100 million in assets under management. You can contact him at email@example.com.
Portland is on the cusp of tremendous economic growth, making it one of the top multifamily markets to invest in this year, as well as in 2017. The region has established itself as the sports apparel capital of the nation, with major brands like Nike and Columbia Sportswear taking up residence.
Nike is planning a 3.2-million-sq.-ft. expansion in the Beaverton campus area, maintaining its ascendancy in the region, and Adidas is expanding its corporate footprint, adding 120 new jobs to the Portland market. Under Armour recently announced that it will also be moving its headquarters to the region. These expansions translate into enormous job growth, which in turn will drive increased resident demand for multifamily, and returns for investors.
In addition, Portland is a unique and desirable place for renters, featuring fantastic colleges and school districts, thriving retail and entertainment centers and a vibrant nightlife scene. It exemplifies a high quality of life, and people want to live and work there, especially Millennials who are enticed by the city’s culture and social appeal.
Further, Portland’s economic profile is similar to that of tech-oriented markets such as the Bay Area. Dubbed the “Silicon Forest,” the Portland MSA is home to a cluster of high-tech companies that specialize in electronic hardware, computer chips and digital displays. Precision Castparts Corp., a Fortune 500 company and industrial tech manufacturing firm, is headquartered here, while Intel, a multinational tech company, is the largest employer in the state with more than 17,000 employees.
Overall, Portland is quickly becoming one of the fastest-growing markets in the nation, and presents a strong investment opportunity for multifamily owners and investors.
This tech capital remains one of the top markets for 2016 due to its continued strong economic drivers, demographic profile of well-educated, highly-paid renters and mass transit options linking the entire Bay Area together.
The Bay Area is currently one of the strongest markets in the country. The region’s record-breaking job growth, coupled with its reputation as one of the nation’s largest technology hubs, is driving demand for centrally-located, high quality housing near major employers. Tech giants such as Google, Facebook, and other Fortune 100 companies are all headquartered in this region, making it the epicenter of technological innovation and a dynamic market that continues to attract Millennials entering the workforce.
In addition, demand for quality housing continues to outpace supply, while high construction and land costs make it extremely difficult to build new product. This has resulted in extremely high barriers to entry, which presents a strong opportunity for investors that can gain a foothold in this supply-constrained region.
Furthermore, this growth is not limited to San Francisco and the Silicon Valley. As rents continue to rise throughout the Bay Area, residents and companies alike are moving to surrounding sub-markets in search of less expensive options. Companies such as Uber and Tesla are bringing their high-paying jobs to the East Bay, resulting in increased demand for housing in areas like Oakland and Fremont.
Investors stand to benefit from targeting these emerging sub-markets. Redwood City, for example, is home to multinational tech and digital companie, including Oracle and EA Sports, providing thousands of jobs in the area. Google recently acquired one million square feet in the region, and Stanford University plans to open a 1.5-million-sq.-ft. satellite campus, expanding its presence in this market.
This combination of tech employers, schools and transit options will continue to drive resident demand, distinguishing this region as a prominent market for multifamily investment.
A thriving coastal market, Los Angeles boasts one of the highest average rental rates in the nation, commanding an average of $2,600 for a two-bedroom apartment, and reaching upwards of $3,000 for new luxury units.
The record pace of job expansion in this market has accelerated demand for quality housing in recent years, placing upward pressure on rental rates.
This unprecedented demand, coupled with the economic revitalization of downtown Los Angeles, is driving the current construction boom, with an anticipated delivery of more than 6,000 new units in the upcoming year, according to CoStar.
While the recent influx in new supply has raised concerns of an overheated multifamily market, Los Angeles has already demonstrated positive absorption of new delivery, and vacancy rates sit at 3.5 percent, indicating strong demand for housing. As demand continues to surge throughout Los Angeles, multifamily owners recognize the long-term potential of investing in this market, which has historically been resilient to economic pressures.
Most importantly, Los Angeles’ emergence as the cultural capital of the West continues to attract a large Millennial demographic, resulting in an influx of new renters to keep up with the pace of new multifamily supply in the years to come.
As a multifamily investor, we are constantly looking at the quality of life in the markets in which we invest. Is this market poised to drive renter demand and are people flocking to the region? San Diego is definitely one of those markets.
The San Diego market has experienced outstanding job growth in the tech, life sciences and manufacturing industries. Its reputation as one of the most creative, entrepreneurial West Coast markets is due largely to the emergence of tech start-ups throughout the region. Carlsbad, for instance, was recognized in 2013 as the digital capital of California by Google. This sub-market is home to companies such as Ostendo Technologies and pharmaceutical firms that are truly at the forefront of tech and biotech innovation.
San Diego’s coastal appeal and entrepreneurial spirit make it uniquely conducive to the growth of local businesses. As a result, job growth continues to climb at a rate of 2.7 percent, adding 37,200 new jobs since 2015 and 14,200 jobs in the first quarter of this year.
These economic drivers are fueling the multifamily market, driving demand for centrally-located housing near employment hubs and placing upward pressure on rental rates. According to Axiometrics, San Diego finished the second quarter of this year with an annual effective rent growth of 5.4 percent, far surpassing the national average rental growth rate of 3.1 percent.
The synergy of San Diego’s tech clusters and the undeniable appeal of this thriving coastal market make it one of the most promising targets for multifamily owners and investors.
It is not easy to ignore the growth that is happening in Seattle. The Pacific Northwest has recently emerged as one of the fastest-growing markets in the nation, spearheaded by Seattle’s tremendous growth and development.
Seattle currently ranks third in the nation for the highest annual rent growth of 7.0 percent, indicating strong potential for multifamily investors. This growth has been fueled by strong employment gains and job creation, especially in the industrial sector.
Kent, a burgeoning sub-market of the Seattle metro, is the third largest industrial area in the nation, and home to some of the most prominent warehouse distribution and manufacturing centers in the United States. Boeing Space & Defense, REI, Tazo Tea and Starbucks Coffee’s headquarters all operate out of the Seattle metro, and employ thousands of people in the region.
Seattle is also distinguishing itself as the technological headquarters of the Pacific Northwest, with Fortune 100 companies such as Microsoft and Amazon stationed here.
In addition to the region’s job expansion in the tech industries, Seattle’s high walkability score, flourishing downtown district and nightlife culture are just a few of the factors that are attracting renters to the region, solidifying its ascendancy as one of the strongest rental markets in the nation, and one of the most promising for multifamily investors.
Overall, West Coast markets continue to dominate in terms of boasting the highest annual effective rent growth, making these the strongest growth areas for multifamily investors. These regions claim some of the most innovative employers and tech giants, high walkability scores and thriving, rejuvenated downtown centers that attract Millennials seeking a work/play lifestyle. Fundamentals for this product type in primary markets remain favorable to investors, and long-term growth is on the horizon.
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