The multifamily segment of commercial real estate remained strong in 2019, but what does the forecast look like for 2020?
With recent rate cuts by the Federal Reserve the commercial real estate sector is in a wait-and-see period for how these cuts will impact investment in multifamily properties. Additionally, the on-again, off-again trade war has created a headwind on the commercial real estate market that adds to the wait-and-see approach due to the uncertainty of the repercussions, if any, of a possible resolution to that issue.
According to the Marcus & Millichap Multifamily Investment Forecast for 2020, household formation will continue to outpace new construction. Construction will continue to increase but the rate will not be enough to catch up to household formation. This will lead to downward pressure on vacancy rates for multifamily. The forecast is that vacancy rates will remain low with a strong outlook for the coming year. The leading regions in the US for household formation and population growth are the Southeast and Southwest. Multifamily investment in these regions is strong as the demand for housing increases with the population increase.
The increased demand for housing is especially strong for affordable housing. However, the cost of construction has created a limitation on the multifamily market. Current constructions costs are to a point that building anything but Class A apartments is unprofitable. These high costs will continue to lead to an inability to keep up with demand for affordable housing.
Overall, the outlook for multifamily investment in commercial real estate looks to continue to be strong for 2020. The impact of the recent rate cuts by the Federal Reserve and the current trade war remain to be seen, but the signs of continued growth in multifamily are still good with household formation continuing to rise and vacancy rates staying low. 2020 looks to be another good year for multifamily investment.
About the Author
Attorney Michael Gay joined Caiaccio Law Firm in 2017 as an associate attorney handling commercial real estate transactions. Prior to that, he worked in the corporate world, in business management and accounting. During his studies to transition into law, Michael served as Secretary of the Older Wiser Law Students organization at Mercer Law School.
Michael is married and has one son. He is an Eagle Scout, an avid college football fan, and he enjoys exploring the outdoors.
He can be reached at firstname.lastname@example.org and by calling 404.846.4990 x 7.