3 Compelling Multifamily Capital Trends Taking Shape in 2020

January 23, 2020

3 Compelling Multifamily Capital Trends Taking Shape in 2020

January 23, 2020

Back in 2018, we noted several multifamily capital trends that we expected to continue dominating the commercial real estate market.

First and foremost, we observed that capital was flowing more noticeably from the traditional centers of development, like New York and Chicago, and toward the secondary and tertiary markets where Millennials had begun to flock in droves.

Seems we were on the right track. According to Real Capital Analytics, Multifamily activity in NYC fell 64% annually in 2019. Nationwide, transaction volume in major metros fell by 26% in 2019. Here are a few more multifamily capital trends expect to see play out this year:

1. Foreign Capital Stays Relevant in 2020

Just under $740 million in multifamily sales volume has already been transacted in Denver YTD.

Foreign investors, especially in countries where stable returns are less certain, will continue to recognize the value of investing in robust U.S. apartment markets.

Even if investors from some nations begin to pull back this year (i.e. China), there is a strong pipeline of smaller players ready and willing to fill the gap. Investment from Bahrain, for example, ranked as the fourth largest source of cross-border capital flowing into the multifamily projects in 2019.

2. Millennial Preferences Still Drive Investment

San Francisco’s population of Millennials ballooned by over 16% between 2011-2016.

It should come as no surprise that the cities where investment volume is at its highest are also the metros attracting strong in-migration by millennial renters. Millennial populations in Denver, San Francisco, Seattle, and Houston each increased by over 10% from 2011 to 2016. Each of these metros is among the top destinations for multifamily investment in 2019.

Unchecked student debt ensures a vast number of Millennials will remain renters for the foreseeable future. According to data analysis by Moody’s Investors Service, just half of borrowers who graduated from college during the financial crisis have begun to make significant progress on repaying their loans.

3. Single-Family on The Rise

Forbes recently ranked Las Vegas as the top spot in the country for investors interested in single-family rentals.

More professional-aged Millennials are growing older, looking to start families, and considering a single-family home. However, these desires are bucking up against the economic realities of rising housing prices and high debt-to-income ratios. An asset type positioned to potentially fill that demand is the single-family rental. This once-niche multifamily sector is gaining plenty of momentum as Millennials grow older and their housing needs evolve.

Expect to see more momentum behind developing and purchasing single-family homes with the express intent of making them rental properties. Single-family renters are proving to be more stable, predictable tenants than the typical apartment renter demographic. As a result, single-family rentals present opportunities for unique long-term plays in the multifamily space.