Five Sunbelt Markets With High Multifamily Returns
Multifamily investments in cities with growing human capital are expected to fare better than investments in Gateway cities.
Economic prosperity in the Sunshine State, Arizona, and North Carolina is raising expectations about the future of the multifamily market despite a consensus among experts that a contraction will plague the sector at the national level in the short term.
According to a recent study from Altus Group, the economic conditions in South and West Florida, the Durham-Chapel Hill area, and the Phoenix metro area translate into a comparatively bullish multifamily market along the Sun Belt, while the sector is expected to languish in Gateway cities.
The study used the Capital Asset Pricing Model, rather than more traditional income-based valuation techniques, to model the expected return of multifamily investments above the NCREIF’s NPI.
Altus’ senior manager of Market Insights Delivery Sally Johnstone said that the expected return of multifamily investments above the benchmark, also known as alpha, will be highest in the following metros:
- Phoenix-Mesa-Scottsdale, Ariz. – 4.9%
- Durham-Chapel Hill, N.C. – 4.7%
- Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla. – 4.6%
- Tampa-St. Petersburg-Clearwater, Fla. – 4.6%
- West Palm Beach-Boca Raton-Delray Beach, Fla. – 4.3%
Johnstone attributed the expected growth in multifamily investments in these markets and other Sun Belt states to positive population and job trends. Gateway and coastal cities, on the other hand, are experiencing much less favorable economic conditions, which is reflected in the softness of the multifamily market, according to Altus.
The Phoenix metro has seen population growth and household income growth exceeding 5% over the last three years, while these same metrics averaged approximately 3%, according to the study. Census data from 2020 revealed that Phoenix grew faster than any other major city in the last decade.
A similar story has been unfolding in central North Carolina’s multifamily market, Johnstone said, albeit for slightly different reasons.
“Durham-Chapel Hill has one of the highest productivity rates of any city; the Gross Regional Product (GRP) per capita is 1.5 times the U.S. average, and its GRP grew at twice the rate of the average U.S. city from 2021 to 2024,” she said. “This region’s rate of educational attainment – the percentage of adults with at least a bachelor’s degree – is one of the highest in the country, while its labor force growth remains slightly greater than the U.S. average, and its unemployment rate trends lower.”
The strong population and labor growth trends in South and West Florida have also yielded positive conditions for the multifamily market in the Alligator State as demand has risen and buoyed rents, the analysis found.
Altus said returns on multifamily investments in Boston, San Deigo and Washington DC have largely remained above the benchmark due to government spending and investments in life sciences.
Although the report links labor and population growth to increased multifamily investments, Johnstone warned that the top five markets have a high sensitivity to benchmark returns, which means that returns will be volatile in down markets.