What to expect from the multifamily housing game in 2017

Over the past several years, the multifamily market has been the “darling” of commercial real estate. In fact, the demand has been so high that developers and builders across the country have had trouble keeping up. Some of the surges are attributed to empty-nesters looking to downsize after their children leave but much of it has come thanks to Millennials who are enamored with the urban lifestyle. They’re leaving behind the suburbs for the promise of walkability, minimal maintenance and, most of all, a sense of community.

The evidence behind this uptick is more than just anecdotal. The hard numbers back it up in a big way. Consider these figures: in 2009, the number of multifamily starts stood at only 97,300. Just six years later, in 2015, the industry saw 385,800 new residential multifamily starts. The completion rate has gone up, too. In 2013, the completion rate was 63% (293,700 starts and 186,200 completions) while 2015’s rate jumped to over 80% (310,300 completions on 385,800 starts). So here’s the obvious question everyone in the industry is asking — will that trend of incredible growth continue throughout 2017?

We may see more traditional growth

Most experts are predicting a mild slowdown for 2017. The number of starts has increased at never-before-seen rates over the past half-decade as builders frantically tried to keep up with the demand. However, much of that demand has been met so some markets may need to experience a degree of absorption to bring supply levels back. Still, growth rates of 3% to 4% are expected, which is sustainable, especially for owners who planned ahead.

If these predictions are right, 2017 will be all about due diligence. A flattening of rents will be inevitable, so the investors and owners who planned ahead and added value to their properties with amenity and interior upgrades will do well. The ones who forgot to tend to near-term capital needs or deferred-maintenance issues will have a much harder time competing.

Small is in

As evidenced by the tiny house craze, small is chic these days. Both empty-nesters and Millennials are eschewing the traditional suburban family homes for smaller, more manageable spaces. Instead, these demographics want luxury. The numbers bear that out. In 2012, only 46% of multifamily completions were high-end. Last year, that number approached 80%. In metro Texas areas, that number reached as high as 88%.

For these two groups, though, luxury doesn’t mean Trump tower gold toilets. Luxury means posh perks like large, multi-use common areas with designer furniture and hardwood floors, yoga studios, wine rooms, rooftop terraces and café lounges.

Tech will still be king

It’s a mistake to think that renters will bring their own tech. Increasingly, they want blazing-fast WiFi, smart thermostats and entertainment packages for smart TVs and sound systems. With more and more telecommuters in the work arena, offering these choices will keep investors, developers and builders on pace with trends as the market evens out.

Know the audience

Of course, no two markets are the same. The multifamily markets in Chicago and Miami collapsed just prior to the last recession but are now epicenters for growth. Demographic, economic and cultural factors also play a significant role in energizing markets, so not every one of these trends will make sense for every new construction or investment. Staying on top of all these things is an art, not a science, so predictions can only do so much to help you cash in on growth. Knowing the market, its people and its culture are more important than any forecast.

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