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Market Intel, Forecasts & Strategies

Multifamily: Stage is Set for Success in 2018

U.S. and Atlanta Market Update

Midway through 2018, demand for multifamily is seemingly insatiable. Both net absorption and construction totals increased from Q1 2018 and total multifamily construction in 2018 is expected to surpass 2017, according to REIS’ Q2 2018 Preliminary Apartment Trends report. “In 10 large markets, supply in 2018 is expected to increase roughly 40% or more from the 2017 levels,” reported RealPage.

Despite being up in the quarter, construction and net absorption were both below the average quarterly numbers from 2017. There were 50,360 new completions in Q2 2018. (The 2017 quarterly average was 60,514.) U.S. net absorption was 37,265 units in the quarter, according to REIS. (Average quarterly net absorption in 2017 was 46,031 units.) 

Source: RealPage

Keeping with the overall growth trend, multifamily permits and starts continued to rise on a national basis, according to RealPage. “According to the latest U.S. Census figures, multifamily permitting on a seasonally adjusted annual rate (SAAR) totaled 421,000 units in the year-ending May 2018. Although down 8.5% from April’s rate, the annual figure was 9.1% greater than May 2017. This was the third consecutive month exceeding 400,000 units and the ninth in the past 12 months,” reported RealPage.

Yardi-Matrix reports that 617,000 new units are expected in the top 30 metros over the next five years with demand for 677,000 units. “Supply could exceed demand in the short term, then moderate as new units are absorbed,” reported Multifamily Executive.

The demand for apartments is buoyed by the healthy job growth we have been experiencing nationwide. Job growth thus far in 2018 has outpaced 2017. “The U. S. added an average of 207,000 jobs per month in the first five months of the year, up from an average increase of 172,000 jobs in the first five months of 2017,” according to REIS.

Because of the higher construction and lower net absorption, vacancy rose in 41 of the 79 metros REIS surveys in Q2 2018. The national vacancy rate rose 10 basis points to 4.8% in Q2 2018. Despite increases in vacancy nationwide, no metro saw a decline in effective rent this year.

Effective rent growth was 1.2% in the quarter and 4% year over year. Average asking rents, (which net out landlord concessions), increased 1.3% in Q2 and 4.4% since Q2 2017. REIS anticipates rent growth will remain positive for the remainder of the year and into 2019 if job growth remains positive.

Multifamily is still an investor favorite. Yardi Matrix calls the U.S. Multifamily market “resilient” in its June 2018 Multifamily National Report. The National Real Estate Investor says that “new construction and rising rents continue to create new opportunities to upgrade older assets.”

Michael Bull

“Multifamily properties are still getting multiple competing offers. Many investors are looking at 2018 as an optimal time to sell before interest rates rise further,” said Michael Bull, CEO of Bull Realty.

Another plus for multifamily is the negative impact on the housing market by the Tax Cuts & Jobs Act, which effectively reduced the incentive to buy a home. (As we said on the Bull Realty blog, the Tax Cuts & Jobs Act may be bad for single family homes, but conversely may be very good for multifamily.)

The prediction has become reality. U.S. home sales are slumping, reported The Wall Street Journal. Existing-home sales slipped 0.6% in June from the previous month to a seasonally adjusted annual rate of 5.38 million, according to the National Association of Realtors. Sales in June declined 2.2% compared to June 2017.

REIS expects construction to “remain robust for the rest of 2018 and in early 2019 before completions drop off in subsequent periods.”

Although vacancy rates are expected to “continue to increase as new supply will outpace demand growth,” there is no doubt that multifamily is well-positioned for another good year.


“Job creation and household growth in Atlanta remain above the national average and are projected to be among the best in the country for the next few years,” reported CoStar also saying that the metro “is in sound shape as a whole.”

The tale of oversupply seems a little overblown. “From 2010 to 2017, multifamily building permits for the Atlanta MSA averaged 7,396 units annually, compared to a yearly figure of 14,783 units from 2000 to 2007,” according to Haddow’s most recent Quarterly Market Insights.

Vacancy in Atlanta was in-line with national vacancy and was unchanged in Q2 2018 at 4.8%. Effective rent growth was up 1.6% in the quarter for an average effective rent of $1,097. Atlanta was 4th nationwide for annual effective rent growth with an astonishing 6.2% growth rate year-over-year, reported REIS.

Johnathon Kendrick

For year-ending May 2018, Atlanta saw 9,974 units permitted, which is actually a 4.2% decrease from the same time last year.

“With the Atlanta multifamily market still in high demand by investors throughout the U.S., I am seeing more out of the box strategies to move their offers to the front of other competition,” said Johnathon Kendrick, V.P. of The Multifamily Group with Bull Realty.

For multifamily, the good times keep on rolling in Atlanta and nationwide.

Bull Realty Research, Inc.