According to the latest JLL U.S. multifamily market report, rent growth and vacancy remained flat through the first quarter of 2018 as new supply continued to deliver at an elevated rate. Annualized rent growth was 2.3 per cent, marking the third consecutive quarter at this level. Vacancy also remained largely unchanged at 5.2 percent, having increased by a minimal 14 basis points in the past 12 months.
Developers remained active in the first quarter, delivering a notable 91,000 new units. This is 41 per cent above the average quarterly deliveries over the past decade. Future deliveries are forecast to exceed 90,000 units per quarter for the next three quarters before starting to trail off in 2019.
Multifamily transactions: Building on a strong fourth quarter
Transaction volumes in the first quarter of 2018 increased notably, with U.S. multifamily investment volumes totaling $33.7 billion. Compared to the first quarter of 2017, volumes marked an increase of 32.2 percent. On an annualized basis, transaction activity is now 9.0 percent higher. Despite a sluggish start to 2017, the multifamily sector continues to post record levels of activity.
Markets: Investors shift their focus back to primary markets
Having been on the decline for the last four years, primary markets saw their share of investment volumes increase in the first quarter of 2018, accounting for 45.3 percent of volumes, up from 40.3 percent in 2017. New York was the most active market in Q1 2018, after having fallen behind Dallas-Ft. Worth in 2017. Volumes in New York rose 8.8 percent quarter-over-quarter and were more than double the activity level of Q1 2017.
Sources of capital: Private capital is driving an outsized portion of transaction activity
Private investors continued to increase their share of investment. Private capital accounted for 65.4 percent of investment in Q1 2018, which is well above the long-term average of this buyer group of 55.5 percent. This increase is being driven by a fragmented and diversified group of investors, of which many are high net worth individuals seeking to deploy a portion of their capital to income-producing real estate. Multifamily properties often represent the first foray of such investors into the commercial real estate sector.
Sources of risk: Despite new supply remaining a concern, investors increase their investment into high-rise product
After seeing significant declines in 2017, high-rise product saw an increase in investment in the first quarter. Transaction volumes for high-rise assets increased by 115.0 percent over Q1 2017. Urban-core submarkets remain the focus of development activity and therefore are still at higher risk of overbuilding. Over the past 12-months, urban-core submarkets have added inventory at more than double the rate of suburban submarkets, which will continue to lead to investors’ measured underwriting.
For the complete report, visit: http://www.us.jll.com/united-states/en-us/research