By Jacob Bourne
Recent research from Yardi Matrix shows an overall healthy national multifamily market despite slowed rent growth in some major regions. Data from the Yardi U.S. Multifamily Outlook Winter 2017 suggests that national rents will increase by just under four percent this year, which holds promise as it’s above the historical average of 2.3 percent. Job growth has been a large factor in the increased demand for multifamily units along with the rise of Millennial renters. Researchers expect a steady stream of Millennials to enter the market in coming years, keeping demand high until it peaks in 2024 when the influx will reach a total of 70 million new renters. Yardi Matrix reports also cite “working class, renters-by-necessity” as a prominent multifamily driver. Demand continues to be strong in major metros with a continued trend of limited supply especially in Northern California markets, however smaller markets are also grappling with supply challenges.
“If one looks at the unit mix in secondary/tertiary markets we see the high supply to be in one-bedroom units, so there is an imbalance in the supply appealing to the demand of two-bedroom-plus consumers,” stated Doug Ressler, department of operations manager, Yardi Matrix. “This becomes more aggravated when you combine the slow growth of median income and financial requirements for singe family purchase.”
Across the board for multifamily, the amount of units set for 2017 delivery just narrowly meets demand, however the 320,000 new units on track nationally for this year, is up by 5.3 percent from 2016 and possibly the highest since the Recession. Seattle tops the charts in forecasted completions with 12,351 units on the way for this year. That metro also experienced solid year-over-year rent growth at 5.4 percent with 8.3 percent forecasted for year-end. February numbers from Yardi ranked Seattle second out of 32 markets in rent growth, behind only Sacramento. The region’s highest performing submarkets for rent growth were North Tacoma, Mid Tacoma, Bremerton, South Tacoma and Tumwater. North Tacoma’s rent skyrocketed with a year-over-year increase of 17.3 percent to $1,396 for an average unit. There are 17,264 units of projected completions in the Seattle region, which represents six-percent of existing inventory.
Rent growth for San Francisco and surrounding markets experienced a decline to negative 0.4-percent between 2015 and 2016, but the forecasted growth predicts a jump by 3.8 percent by the end of 2017 with 6,605 unit completions. Santa Rosa was the highest performing market in the region making gains by 10 percent to an average rent of $1,892. Fairfield, Menlo Park/East Palo Alto, Roseland and San Lorenzo also performed well. The lowest rent growth performing areas were in Eastern San Francisco, China Basin, Northeast San Francisco, Central San Francisco and Southwest San Francisco. In terms of project completions as a percentage of existing inventory, Redwood City had the most with 1,937 units representing 62.1-percent. A rent decline was also seen last year for San Jose with a slight uptick predicted for this year reaching 1.5 percent.
Sacramento’s number one rent growth ranking is put into perspective by its ranking last in terms of completions for Yardi’s February multifamily report. Only 1,022 units are coming ahead, which is just 0.8-percent of existing inventory. Sacramento also ranked number five in job growth, outperforming Seattle’s number six spot. The job growth has pushed rents up for all asset classes, and Yardi research indicates that more recent employment gains have been in the lower income sectors, further driving demand from the renters-by-necessity group. The greatest rental increases were seen in the Central Business District and Davis submarkets. Ressler explained that Sacramento’s governance and land constraints restrict large multifamily projects and that most of the supply is in buildings under 50 units located in the central business core.