CoStar Insights

State of the Apartment Market: Q2 2016

by John Affleck | Sep 19, 2016
Exhibit 1 w LOGO

Based on most key indicators, the second quarter of 2016 was a strong for the multifamily sector.  But after 2015’s record-breaking rent growth and investment results, even a very good quarter can appear to be a slowdown.

Rent growth has eased off of 2015’s record gains to a steady (but not explosive) 3.6%. Vacancies held steady at 4.1% even as an ongoing wave of supply put some pressure on the high end of the market. That’s what limited rent growth in construction-heavy areas like Houston and Washington, DC.

On the other hand, west coast markets including Portland, Sacramento and Seattle saw strong rent growth.

Deal volume during second quarter 2016 totaled $34 billion – which is virtually identical to the same quarter in 2015. And while capital rates drifted to an average 4.9%, markets including San Francisco, Austin, and Sacramento posted some of the strongest gains.

All things considered, investment in multifamily still makes sense. A spate of high-end construction notwithstanding, the U.S. faces a broad housing shortage. On average, the number of new households formed since 2010 outpace the number of new housing units built at nearly two-to-one. Investors concerned about 4 & 5 Star overbuilding may want to look to 3 Star assets outside of prime locations, rather than abandon the asset class altogether.

The multifamily sector’s record of steady rent growth and high occupancy – along with low volatility – makes it an ideal defensive asset as the economic cycle extends into a seventh year.

 



 
 

This post may include "forward-looking statements" including, without limitation, statements regarding CoStar's expectations or beliefs, which are based on our current beliefs and various assumptions concerning future events and circumstances that are subject to change.  Actual results and events may ultimately be materially different.  All forward-looking statements are based on information available on the date published, and we assume no obligation to update these statements.  You should not construe this post as investment, tax, accounting or legal advice.