3 Key Trends in the Multifamily Market To Watch in 2022
Since the beginning of the pandemic there has been a lot of focus on suburban single family units, given the soaring demand for these units as city-dwellers relocated from urban centers to the suburbs.
However, while multifamily investments have generated far less media attention, this property class has been growing ever more attractive to investors across key markets nationwide.
According to data from CBRE, average rents rose by 3.5% from Q1 to Q2 in 2021. Meanwhile, the average vacancy rate fell by 70 basis points to 4%. And in total, investment volume increased by 34%, to $52.7 billion.
So, what are the key market movements for the upcoming year?
At We Lend LLC, we sat down with a four-person panel of real estate experts to uncover three big trends in the multifamily market that will be worth following going into next year. Our expert panel consisted of:
Finley Askin -- Director at CRER
Amir Kornblum -- Partner at Reiss Sheppe LLP
Watch the webinar below:
Let’s kick things off with the number of multifamily trades that the market is seeing:
1. Transaction Volume is Increasing
When it comes to investor-purchasers, buyers and sellers are increasingly finding common ground on multifamily properties.
According to DJ Johnson, the New York market low in terms of trading volume “sat at 150 (trades)” during the pandemic, which has since increased to up to 550 trades a quarter. Johnson goes on to say that this is an indication that “we’re at a crossroads where buyers and sellers are beginning to meet in the middle.”
For investors, they’re discovering that rent in urban and suburban areas is increasing and vacancy rates are dropping, which is creating more favorable conditions for investment. Likewise, investors are becoming more analytical when it comes to making purchasing decisions, leveraging data and reports from real estate experts to make the best investment decision.
Finley Askin added that in Chicago, there has been a surge in buyers who are seeing the multifamily investment potential in the city. Finely noted that multifamily investors “can buy for $50,000 a door, quickly scale up to 200 units and set up their own management,” allowing them to reap the benefits of economies of scale.
2. Return on Investment Remains Strong
When addressing the reasons why multifamily investment is trending up right now, Finley puts it down to three key factors: the fear of inflation, low interest rates and the overall attractiveness of multifamily investment.
With lower interest rates, financing a multifamily portfolio investment becomes significantly more affordable. Johnson pointed out that the 35-year-long abatements that are now available allow investors to keep operating costs at a fixed level over a long timeframe, which will boost return on investment in the event of inflation and subsequent rental price increases.
Speaking of return on investment, the yield offered by multifamily investments is also expected to trend upwards into the new year. Askin pointed out that a 10% yield is possible to find in some markets at the moment. This is, in part, made possible by favorable borrowing rates for multifamily investors.
With investors being able to borrow at favorable rates, combined with the ongoing supply shortage of single-family units, the market demand for multifamily units should continue to drive prices upwards above inflation over the next year and beyond.
3. Regulations are Creating a Blue-State/Red-State Divide
Government regulation remains at the forefront of investors' minds in terms of where to invest in multifamily real estate, Amir Kornblum said. Where there are more progressive policies when it comes to real estate investment, particularly in high-demand locations such as New York City, this is causing multifamily investors to look elsewhere.
“In terms of investment dollars... If the State and Senate Assembly keep [voting] to the left and their wish list [for regulation] keeps getting bigger and bigger, the money is going to go towards the states where it’s free to practice capitalism,” Kornblum said.
In the wake of policy changes at the state level, Kornblum’s multifamily clients who once shopped in New York are now looking to invest in some southern states like Georgia and Florida, where regulations are less restrictive.
Kornblum noted the restrictive element of state policy around real estate lies in the ability to raise rent. “The ability in a rent-regulated building to raise rents is extremely constricted,” he said. In addition, higher property taxes and utility costs on essentials like water are giving further reason for multifamily investors to look outside of blue states.
Unless there’s a dramatic change in the policy strategy among some state governments in this respect, 2022 should see a further shift in multifamily investment patterns from left-leaning to right-leaning locations.
There are plenty of indicators that multifamily units across key markets will continue to represent safety, stability and healthy yields for investors in 2022 and beyond.
As favorable borrowing rates combine with consistent returns for new and seasoned multifamily investors alike, the competition to purchase multifamily real estate will only increase.
At We Lend LLC, we’re here to help provide quick and low-cost capital for investors on multifamily properties. Whether you’re a veteran real estate mogul or a first-time investor, we’ve provided thousands of investors with sound advice on how lucrative their potential property purchase could be. So, if you're looking to expand your real estate portfolio, apply here by answering seven simple questions.