Multifamily properties as an investment class are continuing to enjoy their heyday, National Real Estate Investor reported this week. But will the sector end up becoming overbuilt?
Citing Marcus & Millichap data, NREI notes the still-conservative nature of developers who delivered less than 40,000 new units to market in 2011 while estimates for 2012 are more than double that, at a projected 85,000 new units.
Given the abundance of demand for new apartments, that still won’t put the sector in danger of overbuilding in 2012. In 2011, the national vacancy rate for multifamily properties declined 120 basis points from the year prior, to 5.4 percent, Marcus & Millichap reports. Effective monthly rents rose 4 percent, to $995 per unit. This year, multifamily vacancy should fall another 40 basis points, to 5 percent, in Marcus & Millichap’s estimates. Effective rents will likely rise 4.8 percent.
…Things might get trickier, however, once 2013 comes around….as the number of new construction units spikes to between 105,000 and 250,000 in 2013, over-building may become a legitimate concern, according to Victor Calanog, vice president of research and economics with Reis. In the past 20 years, new multifamily construction peaked at 188,870 units in 1999.
Read the NREI article.
Written by Elizabeth Ecker