The multifamily asset class has captured a lofty position within the commercial real estate industry as an investment preference in recent years. It is relatively easy to see why too.
As the economy has expanded, jobs have been created, attracting people to markets up and down the West Coast. That growth has driven high demand for apartments in markets like Seattle, the Bay Area, and Southern California, as these workers seek out new places to live. Steep housing prices, coupled with lifestyle decisions, often by Millennials to delay starting families and remain in urban settings longer, has resulted in multifamily properties enjoying newfound popularity and sustained interest. That has not escaped the notice of those who invest in commercial real estate.
Kidder Mathews research reveals the multifamily sector is experiencing a renaissance unparalleled in its history. Although new development in 2019 slowed from the previous year’s frantic pace, there is still a strong demand for new units due to the rising costs of homeownership. Q1 2019 transaction volume remained strong, cap rates have stabilized, ranging between 3% and 5%, and average sales prices increased by nearly 13% per unit, year-over-year. Currently, multifamily assets are trading above $249,603 per unit, and asking rents have risen by almost 2.15% to $1,714.
The multifamily market remains undersupplied as developers have adjusted their focus to cater to high-income renters. Household formation trends are also impacting the supply-demand equation.
Research shows that from 2010 to the end of 2017, 8.3 million households formed in the United States. Developers added roughly 4.9 million new housing units, translating into a shortfall of some 3.4 million homes. This supply-demand imbalance largely offset a period of overbuilding between 2003 and 2006. Experts don’t expect this imbalance to persist indefinitely, but in the near future, household formation is expected to exceed the supply of new multifamily and single-family housing units.
Another factor to consider is that luxury, urban rentals have been the favored multifamily property type by developers, which has created an abundance of supply for affluent renters. It has left middle-and lower-income renter households undersupplied and with few options. That has created potential opportunities for enterprising developers to capitalize on deals in these underserved markets. Although the high-end, amenity-rich product sector faces upward vacancy pressure, demand for such multifamily units is still extremely strong. All of the signs point to continued growth in the apartment sector in the years ahead.
Kidder Mathews’ recent addition of a six-person team, led by Dylan Simon and Jerrid Anderson, has served to bolster its rapidly growing multifamily footprint across all offices. The team specializes in multifamily investment properties and development land sales in greater Seattle and the Puget Sound region.
Kidder Mathews’ Brian Hatcher, Regional President Brokerage, said of the additions, “Simon and Anderson complete an important piece to Kidder Mathews’ strategy of assembling a coordinated network of the most skilled and accomplished investment sales professionals along the West Coast.”
The group has completed roughly $1 billion in combined multifamily investment transaction volume, encompassing sales of more than 7,000 units, over the past five years. Also joining were three additional brokers: Matt Laird, who specializes in multifamily investments, Alex Mundy, a debt & equity finance specialist, and Tyler Blaikie, a financial analyst, as well as marketing specialist, Cate Chase.
The addition of a top-performing multifamily investment team was a strategic move that sets up continued growth of the firm in a key sector. Kidder Mathews is the largest independently owned commercial real estate firm on the West Coast, with 800 real estate professionals and staff in 22 offices in Washington, Oregon, California, Nevada, and Arizona.