Though investors were more cautious about U.S. real estate in 2016, they flocked to multifamily, making it the only sector with positive investment sales growth for the year, according to JLL’s Q4 2016 Investment Market Outlook report.
Overall investment sales were down 9.7% to $432B year-to-year, though JLL expects sales volume will pick up by at most 5% in 2017. As for multifamily, $150.3B in investment capital flowed into the sector last year, up 4.3%. Whether the sector will see the same concentration of investment activity this year remains uncertain as experts anticipate moderate headwinds.
A large wave of new multifamily supply is expected to hit in select markets this year — the most supply that has come online during this cycle — putting a strain on fundamentals in markets where most of the new units are expected to hit; this includes cities like Nashville, Seattle, Miami, Denver, San Antonio, Dallas, Austin and Portland.
The luxury apartment boom over the past seven to eight years has had an effect. Gateway markets like New York and San Francisco are experiencing deceleration in rent growth as a glut of supply has forced landlords to lower rents and offer concessions to appeal to tenants.
Despite these challenges, the sector still has one gleaming bright spot — Millennials love apartments. The generation has been dubbed Generation Rent and is expected to continue driving apartment demand through 2024. Experts assert Millennials are interested in homeownership, but are too laden with debt to pursue it. Their interest in owning a home will become more apparent as they continue to age, pay off debt, get married and start families — but this is still a long way off for the majority of the generation.
JLL anticipates apartment rents will continue to grow this year, albeit at a slower pace, and the firm reports strong demand and leasing fundamentals despite major deliveries will make for a strong year. A good portion of multifamily investment for the year flowed in from foreign investors, which contributed $7.3B to 2016’s acquisitions. Foreign money from Canada and the Middle East led the way, though JLL said Asian investors are on the rise.
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