Seattle No.1 Multifamily Market In 2018 Passing Los Angeles

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Seattle No.1 Multifamily Market In 2018 Passing Los Angeles

Seattle has passed Los Angeles and ranks as the No. 1 multifamily market for 2018, according to Marcus & Millichap’s 2018 North America Multifamily Forecast.

Seattle’s ranking is driven by strong employment, especially the tech section, and rapidly rising home prices that push up rental demand in the Seattle-Tacoma area. Portland rose from No. 6 to No. 5 in the ranking.

The metro area outperforms last year’s leader, Los Angeles, which slid one spot. Sacramento, California’s robust rent growth and low vacancy pushed the market up 12 positions in the ranking (to number 8), the largest increase in the index. Other double-digit movers were Orlando (to number 17) and Detroit (to number 28), according to the Urban Land Institute.

Class A vacancy rates will climb in multifamily market

The report sets out the following observations for 2018:

  • Steady job creation, above-trend household formation and elevated single-family home prices have converged to counterbalance the addition of 1.37 million apartments over the last five years, at least on a macro level, easing concerns of overdevelopment.
  •  In the coming year, rising development costs, tighter construction financing and mounting caution levels will curb the pace of new additions from the 380,000 units delivered in 2017 to approximately 335,000 apartments. Although the pace of completions will moderate in 2018, additions will still likely outpace absorption.
  •  Nationally, Class A vacancy rates have advanced to 6.3 percent in 2017 and will continue their climb to the 6.8 percent range over the next year. Vacancy rates for Class B and C assets will rise less significantly in 2018, pushing to 5.0 percent and 4.7 percent, respectively. Average rent growth will taper to 3.1 percent in 2018 as concessions become more prevalent, particularly in Class A properties.

What is the outlook for mutlfamily market investors?

  • The prospects of a rising interest rate environment could weigh on buyer activity as the yield spread tightens. Cap rates have held relatively stable over the last two years, and the sturdy outlook for apartment fundamentals is unlikely to change substantively in 2018. The maturing apartment investment climate has continued its migration from aggressive growth to a more stable but still positive trend.
  • To recalibrate their strategies, investors are broadening their search and sharpening their efforts to find investment options with up-side potential. They have expanded criteria to include a variety of Class B/C assets, outer-ring suburban locations, and properties in secondary or tertiary markets.

Seattle No. 1 Multifamily Market In 2018 Passing Los Angeles

Resources:

2018 North American Multifamily Forecast

Seattle, Los Angeles Are Top Multifamily Markets for 2018

 

 

 

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