Properties Perspectives

Even “normalized” levels of growth can still mean huge opportunity for multifamily investors

Our updated outlook for multifamily real estate.

by CrowdStreet

After record-breaking price appreciation in 2021*, growth in the multifamily sector is expected to moderate as cap rates expand, pulling the pricing towards more normalized levels of growth. However, rising inflationary pressures and further tightening of the housing market means growth in the multifamily market is still possible, even if it drops from the stratospheric numbers we saw last year. Net absorption of multifamily units, for instance, beat a record in the first quarter of 2022, achieving the highest absorption rate since 2000.

**Green Street Advisors - U.S. Commercial Property Outlook, June 2, 2022

Two potentially viable strategies for investors

Well-located multifamily properties more than a decade old often have untapped potential for rent and income growth. And with the rise in interest rates, there seems to a window of opportunity for firms to purchase these types of properties from owners that are seeking relief from their rapidly rising debt service. As such, there is the opportunity for investors to invest in these unrenovated and under-renovated assets and potentially benefit from the value-add strategy. However, as more real estate firms and sponsors seek out these types of real estate investment opportunities, the number of projects like this may diminish over the next few years as these properties are renovated and rents are adjusted to capture current market rents. 

There is also a lot of opportunity in ground-up multifamily developments. The tremendous rent growth in 2021 led to the massive appreciation of this sector, often outpacing the increase in construction costs which were exorbitant in the aftermath of the pandemic. Zelman & Associates’ recently updated its revenue growth from 5.8% to 7.8%, with 13% higher new starts forecasted in 2022 as compared to 2021, setting the stage for “more multifamily completions over the next three years than any comparable period dating back to 1988”. Given the overall undersupply of multifamily relative to demand, we’re not concerned about the increasing supply at the macro level, although some submarkets may overshoot.

We’ve recently updated our CRE Market Outlook, including our outlook for multifamily real estate

 

This article was written by an employee of CrowdStreet, Inc. (“CrowdStreet”) and has been prepared solely for informational purposes. The information contained herein or presented herewith is not a recommendation of, or solicitation for, the subscription, purchase or sale of any security or offering, including but not limited to any offering which may invest in the geographic area(s) or asset type(s) mentioned herein, whether or not such offering is posted on the CrowdStreet Marketplace. Though CrowdStreet believes the information contained and compiled herein has been obtained from sources believed to be reliable, CrowdStreet makes no guarantee, warranty or representation about it. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the subject thereof. All projections, forecasts, and estimates of returns or future performance, and other “forward-looking” information not purely historical in nature are based on assumptions, which are unlikely to be consistent with, and may differ materially from, actual events or conditions. Such forward-looking information only illustrates hypothetical results under certain assumptions. Nothing herein should be construed as an offer, recommendation, or solicitation to buy or sell any security or investment product issued by CrowdStreet or otherwise. This article is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. Investment opportunities on the CrowdStreet Marketplace are speculative and involve substantial risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital. Past performance does not guarantee future performance. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. Understanding the trade-off between risk and reward can help you evaluate strategies to pursue your financial objectives.

Group 2010204
Get the word on the street.

Sign up now for our newsletter to discover key insights, market analysis updates, and expert opinions.

You're In!

Thanks for signing up for our monthly newsletter.