Report Indicates a Strong Multifamily Market, With Particular Growth in the Sunbelt

On August 19th, Newmark Knight Frank released its 2Q 2019 Multifamily Capital Markets Report, providing a variety of insights about the overall multifamily market in the United States and its performance over the last quarter, as well as over the last 12 months. The report shows that the market has been relatively strong over the last quarter, with rents, demand, and employment levels consistently rising.

There are few major surprises for investors in NKF's latest report; interest rates are low, debt is relatively easy to acquire, and demand is still greater than supply. However, some may be surprised at the volume of international capital ($15.7 billion) that's entered the U.S. multifamily market over the last year.

Overall, market activity is growing stronger in non-major markets, while capital remains relatively easy to access. Some of the report’s most impactful findings included:

  • Rent Growth: Over the last 12 months, national rent growth reached 3.2%, but is much higher in some markets, such as Phoenix (7.5%) and Las Vegas (7.8%).
  • Supply and Demand: Demand for multifamily properties continues to exceed supply, with more than 135,000 units coming online since the beginning of 2019, compared to more than 196,000 units that were absorbed in that same period. Demand is highest in New York and Dallas; unsurprisingly, the two markets with the highest amount of overall employment growth.
  • Debt Markets: As of Q2 2019, outstanding U.S. multifamily debt has reached $1.4 trillion, a small increase over Q1 2019. Overall, multifamily debt remains relatively easy to acquire, with the GSE lenders (those offering Fannie Mae and Freddie Mac multifamily loans) contributing to the largest increase in outstanding debt over the last quarter.
  • Top Markets: In the previous year, most markets with the highest returns have been located inside the Sunbelt, with Phoenix and Tampa providing the highest returns of all.
  • Sales Volume: Q2 2019 multifamily sales volume hit $43.2 billion, a 15.9% improvement over Q1 2019, and an 18.5% improvement over Q1 2018. For more than 2 years, multifamily sales volume has increased.
  • Top Buyers and Sellers: For Q2 2019, the top buyers of multifamily real estate included Greystar, Brookfield, BREIT, FPA Multifamily, and Nuveen Real Estate, while top sellers included Forest City, Lone Star, EdR, Fairfield Residential, and Starwood Capital.
  • International Capital: International investors have acquired $15.7 billion of multifamily properties over the last year, up more than 7% from last year. 58.3% of international acquisitions were funded with Canadian capital, making it the largest single source of foreign capital for the multifamily industry. International capital has been flowing toward non-major markets and away from major markets as international investors diversify their holdings and look for investments with a higher potential for growth.
  • Employment: Overall employment growth is strong, which bodes well for the multifamily industry. Dallas and NYC added the most jobs (more than 120,000 each) over the last 12 months.

What Do The Report's Conclusions Mean for Multifamily Borrowers?

Overall, many of the report's findings should come as no surprise to multifamily investors, however, they do shed a lot of light on specific areas of the multifamily market. For most investors, now is still a great time to buy or refinance property, due to the fact that interest rates are still incredibly low. For those looking to buy multifamily property, Sunbelt markets, such as Tampa and Orlando, have great potential for future growth. In addition, while some experts fear a recession, the fact that multifamily unit demand still exceeds supply bodes well for investors, as demand could, in theory, stay reasonably high, even if a recession were to hit. Finally, due to the sizable influx of international capital entering the market, larger multifamily investors and institutions may want to consider the possibility of creating partnerships with international investors in order to acquire or develop more sizable projects.