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Video: Industry Forecasts Revert to the Norm, But Still Strong

The future for multifamily is still looking bright, but the industry should expect to see some meaningful deceleration that will bring things back to a more normal pace.

“We go in cycles,” Brook Wells, director of research and strategy at Deutsche Asset and Wealth Management, said at the National Multifamily Housing Council‘s Research Forum on Tuesday. “We’re not forecasting a recession, but there will be a dial back in demand, whether it’s a soft landing of the economy, or if this is the year people start moving out and buying homes.”

Wells expects this to be the last good year as far as vacancy rates go, in the low 5 percent range nationally. That number will likely edge higher until it peaks in 2016, at 6.3 percent, Deutsche predicts. Wells also expects the industry to dial back net absorption by 2016, but by then, developers will likely pull back on their volume of starts, allowing the market to restart its growth cycle.

Room For Growth?
The days of record rent growth are behind us, but that doesn’t mean the party’s over. Rent growth fell to 2.7 percent this year, and will likely continue falling, averaging 1.5 percent by 2016.

The elasticity of rents is a delicate topic these days.  As the cost of renting begins to outpace the cost of owning in some markets, retention may become more important this year than the ability to push rents to a maximum level. Still, national rent trends are tricky to read: all real estate is, after all, local.

“The good thing is that we don’t play at national level to base prices,” say Nick Buss, director of Research at Dallas-based Invesco Real Estate. “We play at the market and submarket levels, and we’re seeing a lot more variation in those levels.”