The Multi-Family Industry Grows Throughout 2017
The multi-family industry continued to experience above-average performance in 2017.
There were 336,000 multi-family units completed in 2017, an increase over the 321,000 units completed in 2016. According to the Fannie Mae 2018 Multi-Family Affordable Housing Outlook, most new supply over the past few years has been focused in high-rent segments.
Interestingly, there has been little growth in stock of affordable multifamily housing. Strong demand for multi-family rentals has prompted developers to renovate more affordable housing to higher-rent units.
The impact of the two trends has been that while the number of Class A units have grown by an estimated 1.1 million to 5.0 million total units since the end of the recession, the number of Class B/C units remained virtually unchanged at an estimated 5.7 million units (Reis, Inc.) We expect to see this trend continue as information on 2018 becomes available.
According to the Joint Center for Housing Studies of Harvard University, the number of multi-family units declined slightly over the past year and expanding supplies of new luxury apartments pushed up rental rates.
According to data from the National Council of Real Estate Investment Fiduciaries, net operating income for investment-grade multi-family properties in 2017 grew 3.4% from 2016.
In addition, the annual rate of return on rental property investments was 6.4% for 2017. Rental property prices and sales remain strong. Real Capital Analytics (a commercial real estate database which tracks prices for rental properties and portfolios of at least $2.5 million), reports that nominal apartment property prices rose at a 12% annual rate averaged in 2014 – 2017.
As a result, apartment prices now stand 30% above the mid-2000s peak in real terms.