Sun Belt Offers Warmer MF Climate

“The fundamental demographic shifts driven by Millennial renters” are driving apartment demand, says Ten-X’s Peter Muoio.

IRVINE, CA—“Sunny and warm” is a phrase that could describe both the climate and the investment outlook in Ten-X’s top five “buy” markets for multifamily properties. The five markets where the firm recommends that investors consider selling offer more varied climates, both in terms of weather and market fundamentals. Ten-X’s latest US Multifamily Market Outlook identifies five Sun Belt cities—Orlando, Phoenix, Atlanta, Fort Lauderdale and Las Vegas—as markets in which investors should consider buying, and puts New York City, Pittsburgh, San Francisco, Miami and Nashville at the top of the list of markets in which investors might consider selling their holdings. Ten-X Research chooses the top “buy” and “sell” markets based on several criteria that include projected NOI growth, vacancy improvement, rent growth and valuations in the Ten-X Research Long Term Forecast. In the case of Orlando, Ten-X Research is forecasting a 20.1% increase in average asking rents between the first quarter of this year and 2019, while the vacancy rate is expected to remain steady at 5.7%. New York is expected to see a 5.2% decline in rents over the same time period, and a 650-basis point increase in vacancies from the current 3.5% to 6.5%. The report notes that rents continue to grow nationwide, albeit at a slower pace, and the vacancy rate remains consistent with healthy renter demand, although it has ticked upward by 10 bps per quarter since the first half of 2015 . The vacancy increases reflect the ongoing surge in multifamily construction: a total of 260,000 units are expected to come on line this year. Although this delivery pace will be slightly faster than the absorption rate this year, supply and demand are likely to remain relatively balanced over the next two years. “Several factors are driving apartment demand, not the least of which are the fundamental demographic shifts driven by millennial renters,” says Peter Muoio, chief economist with Ten-X Research. “While homeownership increased slightly in the first quarter of 2016, trends suggest that more and more households will opt to rent, rather than own, in the near term. In general, young people, who witnessed the Great Recession firsthand, are more averse to purchasing homes, particularly as couples tend to marry and have children later in life.”