Throughout its history, the Multifamily sector has been among the strongest markets on the face of the earth. Although the current market continues to stand with steadfast footing, there are some experts that see a dark cloud forming on the horizon. Could there be some problems for this multi-billion dollar industry? Kristi Nootens, Vice President of Investment Management, CP Capital US, believes that there could be some unavoidable hurdles for the high-end multifamily housing market.
The Strength of the Market
Although it may have looked a little bleak as the pandemic surged its way across the United States, the multifamily market stayed strong throughout the entire ordeal. While vacancy rates skyrocketed higher than they had been in decades, rent rates plummeted to all-time lows, and younger renters packed up their stuff to move back in with mom and dad, it did not take long for the market to rise like a phoenix from the ashes.
The CBRE reported that in 2022:
- Vacancy rates dropped 2.3%
- Average rent rates had an increase of 15.5% year-over-year
- New construction raised to close to half a million deliveries
- Investment volume reached upwards of $63 billion
- Absorption jolted upwards almost a total of 700,000
It is obvious that these numbers are healthy and even robust, however, experts that have a bird’s eye view of the market are predicting that even though the market is booming and there is a lot of promise for new investments, there could be a bursting bubble for luxury properties.
Costs of Living
As the end of 2022 is nearing our country has seen a large shift in the economy. The pandemic, the war happening between Russia and Ukraine, and many other factors seem to be taking a toll on the economy of the entire planet. The cost of goods and services is steadily growing, and the value of the all-American dollar is beginning to dwindle.
Due to rising costs, inflation, threats of war, and other gloomy topics, the general public does not seem so confident as to spend big on luxurious living. The result is a continual increase of vacancies in the high-end sector of luxury apartments.
What this means is that savvy investors will be reluctant to invest in these types of properties, at least for the time being.
An Optimistic Outlook
Investors in the multifamily sector continue to be optimistic in their efforts. When it comes down to it, people essentially need places to live. Whether or not they can afford to live luxuriously, is another story.
Wise investors look for places to put their money where there are higher-yielding opportunities and where there is room to absorb lower rents and additional costs. When an investor chooses to invest wisely and teams up with strong, reliable development partners they have a great chance of seeing huge returns.
As long as people need places to live, there will always be opportunities for multifamily investors. Even though the economy shifts and becomes seemingly unstable from time to time, keeping a keen eye on the market trends and knowing where to look for opportunities will help to shine a light in the dark areas where uncertainty tries to prevail.