26 Oct Multifamily Is Still On Top
Despite the record-breaking number of units delivered over the past twelve months, multifamily still remains the preferred asset class for investors, with a growing number of them expecting to allocate more capital to the resilient asset class in the coming years. Vacancy rates have increased across many major markets due to the increase in supply, “But once that gets absorbed, there’s not much coming behind it. So, that pendulum is going to swing back, putting further upward pressure on rents” according to John Sebree, SVP and National Director of Multifamily at Marcus and Millichap. That doesn’t go without saying that there are nuances that investors need to be weary of, and that experience, strategy, and execution are as important as ever.
Multifamily | The Most Attractive Asset In CRE
Many industry professionals maintain an optimistic outlook regarding the future of the asset class. “Multifamily remains the most attractive asset class in commercial real estate, with industrial and self-storage not far behind”, according to Leo Leyva, co-chair of the Litigation, Real Estate and Real Estate Special Opportunities departments at the law firm Cole Schotz. However, developing a strategy and executing accordingly will be key. Sebree, emphasizes the growing importance that property management is going to have in maximizing property value as we move forward.
Create Value Where Needed
Additionally, it will be important to create value where it is needed, rather than forcing value in a financial environment that may not warrant it. For example, Noah Hochman, Co-Chief Investment Officer and Head of Capital Markets at TruAmerica Multifamily, states “We are no longer renovating for the sake of renovating. We have scaled back renovations and put them on hold. Instead of completing 10 renovations per month, we now focus on three or four, primarily on units in poor condition. The key is avoiding over-renovation. Today, we are more thoughtful about property turnovers.”
Prime Opportunity To Deploy Capital
It seems at this point that many buyers are still sidelined, including institutional investors that are likely waiting for the volatility of the bond market to settle. However, the capital is abundant, and they’re just waiting for the prime opportunity to deploy. This environment will likely not last long, so it’s time to be preemptive, understand exactly the kind of products you are looking to pursue, and then do so aggressively. According to Sebree, “As that capital starts coming into the market, it’s actually going to be more difficult for people to get deals done just because of the amount of competition that is going to be going after every single deal”.
How Does This Translate To Our Backyard? Demand, Demand, Demand
Austin has experienced one of the largest influxes of new units of any major metro in the U.S. While many interpret this as an oversupply that will dampen the strength of Austin’s multifamily real estate fundamentals, this imbalance is likely temporary. Jay Parsons, Chief Economist at RealPage, states that Austin historically has had little trouble absorbing new Inventory. While he doesn’t expect this to change, owners and operators can expect to see slower, more competitive lease-ups. He added that the long-term outlook remains very positive, especially at the rate that the city is attracting new companies and expanding others, which he expects to drive demand for workforce housing.
Below are some highlights regarding new companies entering or expanding in the Austin area:
• ZT Systems: Cloud Computing Equipment and AI Software – will create 1,500 jobs.
• Acutronic: Bringing the state’s first jet engine facility to Bastrop – will create 50 jobs.
• Related Cos: Built new cold storage facility near Lockhart – plans to hire at least 100 people.
• Tesla: Electronic Vehicles – Plans to hire up to 60,000 with 8,500 coming this year.
• Oracle: Cloud Software – Pledged another 1,000 jobs.
There are plenty of reasons why people are looking to move their lives and careers to Austin. Many seek an environment where they have access to both the rural and urban landscapes. Markets where people can “escape from the craziness” are performing well, according to Levya of Cole Schotz.
Multifamily Opportunities Positioning Investors To Benefit
With the multifamily sector poised for a promising future, now is the opportune time to seize these investment opportunities. Despite the temporary increase in vacancy rates and the cautious approach of some institutional investors, the abundance of capital waiting to be deployed hints at an imminent surge in competition.
By understanding the market’s cyclical nature, investors can position themselves to benefit from the upward trajectory that the multifamily sector is expected to follow. With Austin’s vibrant economic landscape and the influx of leading companies driving demand for workforce housing, the region presents a compelling case for investing in multifamily real estate.
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Sources: GlobeSt; GlobeSt; GlobeSt; ABJ
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