Multifamily Topics

The multifamily industry continues to evolve thanks to the growing demand for affordable housing, the rise of urbanization, and the changing lifestyles of younger generations.

Several trends have emerged in the last few quarters and are shaping the future of this sector.

Up and Coming Trends

Owners are incorporating new features into their properties to provide their tenants with a better living experience while attracting younger renters who also value these amenities.

Sustainability

Sustainability is a significant trend in the multifamily industry. Many developers are now focusing on building eco-friendly properties with low carbon footprints. These properties utilize energy efficient appliances, green roofs, rainwater harvesting systems, and other sustainable features that reduce energy consumption and promote a healthy environment. Additionally, properties with a sustainability focus appeal to younger renters who value eco-friendliness and are willing to pay more for sustainable housing options.

Property Technology

Property technology allows tenants to control various aspects of their homes, such as lighting, temperature, and security, using their smartphones or other smart devices. Property managers can also use this technology to manage their properties more efficiently, track maintenance requests, and reduce energy usage.

Community Spaces

Community spaces are an essential part of multifamily properties. These spaces provide tenants with a place to socialize, work, and relax outside their apartments. Developers are now incorporating more community spaces in their properties, such as co-working spaces, gyms, outdoor lounges, and game rooms, to enhance the overall living experience.

Health and Wellness

As people become more health-conscious, multifamily developers are incorporating health and wellness features. These features include fitness centers, yoga studios, wellness rooms, and outdoor spaces designed for exercise and relaxation. Additionally, some properties now offer health and wellness programs, such as cooking classes, nutritional counseling, and wellness workshops, to promote healthy living among tenants.

Flexibility

With changing work and lifestyle patterns, tenants seek housing options that offer flexibility in lease terms and apartment layouts. Owners are now offering more flexible lease options, such as month-to-month leases or short-term leases, to accommodate the changing needs of renters. Additionally, many properties now offer adaptable apartment layouts that can be easily reconfigured to suit tenants’ changing needs.

Pros of the Multifamily Sector

The multifamily sector offers several benefits for real estate investors. One of the most significant advantages is the economies of scale, as owning multiple units in one building can lead to lower operating expenses and potentially higher returns on investment. Additionally, multifamily properties offer a steady rental income, especially since the rental income can be adjusted more frequently.

Furthermore, multifamily properties are often considered recession-resistant due to increased demand for rental properties during an economic downturn. Shorter lease terms and diverse income streams from multiple units can help mitigate risk. At the same time, government programs that support affordable housing can provide investors with additional opportunities for stable returns through rental subsidies or tax credits. Overall, investing in multifamily properties offers the potential for stable returns, diversification, and long-term wealth generation.

Challenges Facing the Sector

Challenges facing the multifamily sector include rising construction costs, competition from new construction and emerging rental models, and increasing regulation and scrutiny from local governments. Additionally, there is a growing need for affordable housing options, which can limit rent growth and create financial pressures for property owners and investors. The limited availability of suitable development sites in desirable urban areas can also make it difficult to meet the demand for rental housing.

Multifamily Market Outlook 2023

Specialists are wary about the outlook of the multifamily industry in 2023. They anticipate a decrease in demand during the first half of the year, which will lead to negative growth in rent for at least the first quarter of 2023. However, they expect a slight demand increase during the year’s second half.

During the past year, the Sunbelt markets that previously experienced the most growth in 2021 have seen the largest declines in rents. Las Vegas and Phoenix have been hit the hardest, with their rents dropping from just over 20 percent growth to slightly negative over the past four quarters. However, Midwest and Northeast markets have fared better over the past 12 months, experiencing only marginal declines in rent growth.

According to CoStar Group, there were a record breaking 959,000 units under construction at the end of 2022, and it is projected that there will be a new record of 507,000 units delivered in 2023.

Takeaways

The multifamily sector is constantly changing and reacting to the current volatile environment. However, the need for housing remains prevalent despite the inflation rate or rent growth trends. As time passes, the multifamily sector will continue evolving and adapting to changing consumer preferences.