The multifamily market is facing a transition time. Transaction volumes have dropped from a record setting 2016 as rent growth is softening and new projects are coming online. Opportunities still present themselves, however, care needs to be taken to ensure the financials of a potential purchase make sense. More than any time since the bubble burst in 2009, choosing the best market for your investment is key.
Seattle is the hottest real estate market in the country, and multifamily is no exception. Seattle has a young, highly educated workforce with a high percentage of tech jobs as well as established companies including Boeing and Costco. Population growth is projected to be double the national average with the segment 15-34 projected to grow 17.3% in the next five years. While Seattle has experienced a recent construction boom, demand has continued to outpace supply and the boom is fading due to increased construction costs and regulatory challenges.
#2. Salt Lake City
After Seattle, the hot spots are in secondary markets such as Salt Lake City. This historically low cost area has steady job growth with a very low unemployment rate and a business friendly government. The downtown area has attracted many new residents with its health employment prospects and walkable nature. Job gains across a variety of industries including professional and business services, education, health care and transportation have led to an unemployment rate of around 3%. This has contributed to a vacancy rate of 4% and rent increases of 5% in 2017 and should remain strong and resilient in the future.
North Carolina also hosts a couple of stars for multifamily housing. Raleigh and Durham anchor the famed Research Triangle, which is home to North Carolina State University, the University of North Carolina at Chapel Hill and Duke University as well as a network of high tech and biotechnology firms that have grown around them. Strong growth in the high tech sectors has buoyed demand with a healthy absorption of new units.
With an effective year over year rent growth of over 5% and an occupancy rate holding steady at over 90% since 2009, the market has shown resiliency and growth. Additionally, Charlotte, North Carolina has seen strength through the market cycle. The strong economy has resulted in occupancy averaging around 95% since 2012 with new construction quickly absorbed.
Finally, Sacramento, California has seen strong rent gains. With proximity to San Francisco and Silicon Valley, Sacramento has seen spillover from these overheated markets as renters seek affordable housing. The opening of the Golden One center, bringing basketball’s Sacramento Kings from the northern suburbs to downtown has built some buzz for downtown. This population influx combined with state legislation pushing to contain affordable housing has led to rent increase of 9.9% year over year, the highest in the state of California.
The softening national rental market makes location more important than ever for multifamily property investment. Despite the risks, investing in these markets is a good bet for 2018.