Ten-X Commercial: Multifamily Rental Demand Remains Strong But Climbing Vacancies Raise Questions Of Oversupply

Gensler, Forge Development Partners, San Francisco

IRVINE, Calif. and SILICON VALLEY, Calif.(Aug. 2, 2018) – Ten-X Commercial, the nation’s leading online and only end-to-end transaction platform for commercial real estate, today released its latest U.S. Apartment Market Outlook, including the top five ‘Buy’ and ‘Sell’ markets for multifamily real estate assets. The report shows a U.S. multifamily market grappling with robust supply as vacancies have climbed 40 bps in the past year and are projected to soar by another 110 bps by 2021.

“Completions have outstripped absorption for six straight quarters, while absorption has slipped to its lowest level in more than five years,” said Ten-X Chief Economist Peter Muoio. “While today’s sub-5 percent vacancy rate is relatively low from a historical perspective, vacancies have climbed to their highest level since 2012 amid this new supply.”

Ten-X Commercial identifies Houston, Raleigh-Durham, N.C., Salt Lake City, Fort Worth Texas and Charlotte, N.C. as top markets where investors should consider buying multifamily assets. These markets continue to enjoy significant demand, which is underpinned by resilient local economies.

Miami, San Jose Calif., New York City, San Francisco and Oakland, Calif. are the top markets where conditions might cause investors to consider selling multifamily properties. These cities face rising vacancies and flattening rents as a wave of new supply is hitting the market — a situation which has not improved in the past six months and shows no signs of abating.

Nationally, multifamily completions should reach an all-time peak in 2018 as more than 300,000 new units flood the market, outpacing even the highest absorption levels in recent history. As a result, vacancies are expected to drift above 5 percent by the end of the year for the first time since 2011.

Ten-X Commercial incorporates cyclicality into its forecast model with a stress test in 2019-20, a scenario meant to estimate recessionary conditions rather than serve as a temporal prediction. Absorption is seen remaining positive but slowing amid the downturn scenario, lifting vacancies to the mid-6 percent range by 2020. Demand is projected to improve at the onset of recovery in 2021, bringing vacancies back below 6 percent, though they are forecasted to finish more than 100 bps above their current level.

U.S. apartment rents saw 3.9 percent annual growth in the first quarter, jumping to a record $1,321 per unit. This marks a notably cooler growth pace since rent growth peaked at nearly 6 percent in late 2015. Rent growth is forecasted to continue cooling through the recessionary scenario before returning to the low 2 percent range at the onset of recovery in 2021.

The multifamily sector’s overall deal volume totaled $35 billion during the first quarter, a 27 percent increase from the same period in 2016. From Q1 2018 to Q2, the overall number of multifamily properties transacted via all three transaction solutions on the Ten-X platform increased by 33 percent. Multifamily properties transacted via Ten-X Commercial’s Live Bid solution rose by 12.5 percent over the same time frame while the numbers of bidders grew by 10.4 percent, further showcasing the rise of interest in the multifamily sector.

“While millennials and other demographic groups continue to forego homeownership in favor of renting in walkable neighborhoods, developers appear to have gotten ahead of themselves in creating rental supply,” said Ten-X Chief Economist Peter Muoio. “The pipeline can reasonably be described as a flood and though demand for these units is likely to come in the years ahead, we can expect to see some significant digestion issues in the near term.”

The Apartment Sector’s Top Five ‘Buy’ Markets:


In Houston, a resurgent energy sector is turbocharging the local economy and buoying apartment rents. Houston’s multifamily vacancy rate measured 6.2 percent in the first quarter of 2018, down 50 bps year-over-year and 660 bps below the cycle peak. Effective rents jumped 6.1 percent year-over-year, accelerating to their peak rate for the cycle. Ten-X Commercial forecasts that Houston is likely to prove considerably more resilient during a modeled downturn than other markets, with NOIs likely to see 6.0 percent annual gains through 2021.


Economic indicators show Raleigh-Durham sustaining healthy gains, despite cooling in some sectors. The market’s unemployment rate fell 50 bps year-over-year and is below the national average, while annual job growth is in the 2 percent range and payrolls are at an all-time peak. Effective rents rose 5.3 percent year-over-year, close to the peak growth rate for the cycle. In the event of Ten-X Commercial’s modeled downturn in 2019-2020, Raleigh should maintain its upward trajectory with apartment rents finishing 13.4 percent higher than their current mark in 2021. NOIs are projected to rise each year at an annual average of 3.6 percent.

Salt Lake City

Salt Lake City’s robust transportation/utilities sector is helping drive rapid job growth and apartment availability remains tight in Utah’s capital. The city’s economy will likely weather a recessionary scenario better than most markets and apartment rents are projected to rise by a total of 12.6 percent by 2021. In the same time period, NOIs will climb 3.4 percent annually. The market’s positive picture is buttressed by an unemployment rate well below the national average and a fast-growing population.

Fort Worth

Fort Worth is enjoying low unemployment and solid job growth, with total employment up 3.1 percent year-over-year. The city’s prominent trade and transportation sector jumped 4.1 percent from a year ago, while leisure and hospitality employment posts robust gains of more than 5 percent per year. Though apartment vacancies are unchanged year-over-year at 3.7 percent, they measure at 800 bps below their cycle peak. Like other top “Buy” markets, Fort Worth is expected to weather a modelled recession with resilience. Apartment rents in the city are projected to be 12.3 percent higher by 2021, while NOI will rise 3.2 percent per year through 2021.


The outlook for multifamily investors in Charlotte is bright, in part due to the market’s healthy employment gains. Annual job growth is in the high 2 percent range and payrolls are at an all-time peak. The professional and business services sector, the metro’s largest, has seen robust growth this cycle. The education and healthcare sector has also seen job gains. Meanwhile, population growth remained at an impressive 2.0 percent in 2017, almost triple the national average. Effective rent growth is up 6.4 percent year-over-year, making it the most aggressive rate of the cycle. Rents are projected to rise 10.2 percent from their current position by 2021, despite the modelled recession. NOI will likely record annual gains of 2.8 percent through 2021.

The Apartment Sector’s Top Five ‘Sell’ Markets:


Miami’s economy is cooling and a heavy construction pipeline will offer little relief. In the event of a modeled downturn in 2019 and 2020, Miami would prove considerably less resilient than most markets. Apartment rents are expected to rise a tepid 0.5 percent from their current marks by 2021, while vacancies are expected to spike to 10.0 percent that year. NOI is projected to drop sharply in 2019-2020, eclipsing the expected gains in 2018 and 2021.

San Jose

San Jose’s economy is showing signs of a slowdown, even as a heavy supply pipeline continues to hit the market. Unemployment is an extremely low 2.6 percent, but population growth slid for a fourth straight year in 2017 to 0.4 percent, suggesting the end of the city’s rising tide. Though effective rents rose 2.1 percent year-over-year, that rate is a substantial slowdown from the pace earlier in the cycle. In fact, rents are forecast to fall 2.7 percent between now and 2021 with vacancies settling at 6.7 percent, 210 bps higher than current levels. Due to severe declines during the modeled recession, NOIs are projected to fall 1.0 percent on average through 2021.

New York City

An unrelenting supply pipeline is sending vacancies soaring, as key sectors of the city’s economy weaken. New York City is not forecasted to weather the modeled recession well, as several key business sectors are already seeing slowed growth. Over the next three years, apartment rents are projected to fall 1.2 percent from their current mark, while vacancies will grow by 40 bps to 5.9 percent. New York City’s economic growth rate remains stuck in the 1 percent range, a sharp slowdown from earlier in the cycle. Population growth has slowed for the sixth consecutive year in 2017 to just 0.1 percent.

Note: Our analysis of the New York City market focuses solely on market-rate rental complexes consisting of 40+ units in Manhattan, Brooklyn, Queens and the Bronx. It excludes affordable housing, condos and co-ops.

San Francisco

Like San Jose, San Francisco’s outlook is hampered by poor demographics combined with a heavy supply pipeline. While the economy is still adding jobs, the rate of expansion has cooled from its previous torrid pace. The city is expected to be considerably less resilient than average in the event of a modeled downturn, with apartment rents dropping 4.0 percent from their current levels by 2021. Over the same time period, vacancies are expected to rise 150 bps to 6.0 percent. NOI will fall 1.1 percent annually through 2021, with 2018 and 2021 gains bookending severe declines in 2019 and 2020.


Oakland’s economy faces considerable tech-related downside risk. The large information sector is growing at just 1.5 percent, sharply below its 2015-2016 pace. While unemployment is extremely low, the city’s appeal to newcomers seems to have abated, as population growth decelerated to 0.7 percent in 2017. Meanwhile, a heavy construction pipeline is colliding with weak demand, straining fundamentals. Apartment rents will decline by 2.8 percent by 2021, while vacancies are expected to rise to 5.4 percent. Like other “Sell” markets, Oakland’s severe NOI losses projected for 2019 and 2021 will offset gains in 2018 and 2021; on average, NOIs will fall 1.0 percent annually through the forecast period.

About Ten-X Commercial
Ten-X Commercial is the nation’s leading online and only end-to-end transaction platform for commercial real estate. Since 2009, the company has sold more than $20 billion in commercial real estate. The company blends data-driven technology with industry expertise to accelerate close rates and streamline the entire transaction process. Ten-X Commercial and its parent company, Ten-X, are headquartered in Irvine and Silicon Valley, Calif., with offices in key markets nationwide. Investors in the company include Thomas H. Lee Partners, L.P., CapitalG (formerly Google Capital) and Stone Point Capital.

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