The multifamily sector is getting closer to the peak last seen before the beginning of the recession, according to Fitch Ratings, but “the market will not overheat.”
Rental pricing and inventory data suggest favorable demographics and a limited new supply will ensure recent gains in the renting and occupancy of multifamily properties will be sustained in the future, analysts wrote.
First off, while most agree there is a recovery underway the number of multifamily buildings under construction still lags expected demand growth.
Several longer-term factors appear to be favorable for the multifamily marketplace including demographic data. It is one of the leading indicators given that according to the U.S. Census the renter population that consists of individuals in the 20- to 34-year-old age range is likely to grow from nearly 66 million in 2012 to almost 70 million in 2025.
Regionally specific development helped illuminate the reality on the ground beyond the overall market data, Fitch said. For example, an analysis of recent data reported by Freddie Mac about sales of multifamily properties—combined with calculations based on national net effective rents at or near peak levels provided by real estate data specialist REIS—show an increase in rental prices compared to the lows of late 2009.
Findings also show these rent increases still remain approximately 25% below their peak.
“Evidence of a reduction in multifamily vacancy is more complete and sends a clearer message,” Fitch said, since according to REIS, the current 5.2% national vacancy “is the lowest recorded vacancy since 2001 and is meaningfully lower than the 8% in 2009.”
And according to analysts, the change “can largely be attributable to the lack of new supply.”
It also means the downside of risk is not the same.
Fitch analysts find there still is “substantial equity in recent acquisition financing,” so the rating agency said it plans to further inquire about the dynamic of trends in multifamily net operating income and cash flows in addition to rents and vacancy.
