While 2016 showed many multifamily markets with tepid rent growth, it also laid the foundation for a highly prosperous 2017 — especially for those looking to add to their portfolios. Below, we outlined the top ten multifamily markets for investors in the coming year, leaning on data from PWC, BisNow, the Urban Land Institute, and Freddie Mac.
NORTHERN NEW JERSEY
Heralded by PWC to be the No. 1 market for the multifamily industry in the coming year, Northern New Jersey’s influence is inextricably linked to the economic performance of New York City, its influential neighbor. Combining development, investment, and home building, Northern New Jersey is set up for success precisely because of developments within the New York market. The Urban Land Institute suggests that New Jersey’s pole position of opportunity comes down to its offer of a “metro-burb,” a close access point to the public transit that connects to the greater New York metropolitan while offering residents a lower cost of living and “the ability to live and play in the same area.”
ULI goes on to say that “adding an office to multifamily gives residents the option of a true coworking space where they live,” which helps offer a reasonable alternative to the soaring prices of Manhattan real estate. New York is forecasted to have a fairly meager rent growth, hovering under 4%, well under the historical average for the metropolitan. As a result, vacancy can expect to hover around 3-4% as residents seek more affordable rent in Northern New Jersey.
Combining investment, development, and homebuilding, Miami is the next market on the list that’s expected to perform well for multifamily in the forthcoming market--but not everyone agrees. BisNow suggests that despite unemployment in Miami improving by 6%, it’s economic growth has been relatively stagnant, leaving vacancies suggested to jump by up to 5-8% in the next few years. However, the Urban Land Institute and Freddie Mac offer a more optimistic tone, recommending that investors actually buy multifamily properties in the South Florida metropolitan.
Despite slow job growth and a rent growth of just under 4% forecasted for the upcoming year, ULI expects that Miami should become a fruitful market for investors due to increased population growth. Coupled with other southeastern Florida markets like Fort Lauderdale and West Palm Beach, Miami is again enjoying population growth that is turning into employment growth. Combining this with a limited amount of new supply, Miami should be a good place for those looking to invest in multifamily in the coming year.
The Windy City is calling multifamily investors again in 2017. Chicago, among the top-ten markets with growth in annualized gross income for all age groups, promises to be a stable market due to its popularity with millennials. Chicago had a 4.5% increase in annualized income during 2016, and that’s expected to rise by another 5% during the upcoming year. In addition, its vacancy rate is expected to stay under 4% in 2017, mirroring 2016’s 3.8% vacancy rate.
Chicago is an increasingly popular city with renters due to its affordable urban core. “The Chicago urban core continues to benefit from corporate headquarters moving all or some of their operations from the suburbs to the urban core,” staying “attractive to tech company growth,” driving the need for both office space and the urban multifamily market.
Leading the pack of West Coast cities in the multifamily industry, Oakland and the East Bay are offering a powerful market in 2017. Like Northern New Jersey, the developments in Oakland should be contextualized by proximity to San Francisco, a market where vacancy rates are expected to grow to nearly 8% as rapid development leaves supply outpacing demand, and a booming tech industry that is seeing residents priced out of the San Francisco metropolitan. As a result, Oakland is in pole position to receive some of those that are fleeing the high rent of The City for rents only slightly cheaper in the East Bay.
The surprisingly diverse Oakland economy is also driving an influx of renters as firms choose to relocate from San Francisco and San Jose for a lower cost of doing business in Oakland. As a result, the city is set to provide an influx of residential construction that should add well-paying jobs to the economy throughout 2017.
The greater DFW metropolitan is one of the multifamily industry’s most competitive markets and shows little signs of slowing. ULI recommends that investors buy or keep investments in the Dallas-Fort Worth area, as its business-friendly environment continues to attract residents due to the “cost of doing business, a well-educated workforce, and world-class transportation.”
Similarly, Dallas also offers a large number of colleges and universities, making this a tremendous market for multifamily, as graduating students are surrounded by a booming marketplace and the prospect of a good career in an urban setting. Further, Freddie Mac argues that Dallas will continue to go from strength to strength in 2017 as low vacancy rates will support new supply.
Another competitive market that continues to perform well for the multifamily industry, Atlanta is again set up to be a winner for multifamily investors in 2017. According to ULI, the pace of recent economic growth combined with little headway in terms of new supply make it a vastly interesting prospect for both foreign and domestic investment. Improvements within the Atlanta cityscape also allow for development within the metropolitan on multiple fronts; from improvements in the economy to massive transportation improvements, developers are able to offer urban developments that still retain high walkability and common green spaces.
Freddie Mac anticipates that Atlanta may slow down a bit in 2017, but should still experience a rent growth over 4% throughout the coming year--well above the historical average.
Boasting a diverse economy in one of the most sought-after locations in the United States, Orange County is set to be a market to watch in the coming year. With a diverse economy bolstered by higher incomes, Orange County gives investors the opportunity to see real reward due to low vacancy rates with limited new development.
Part of the allure of Orange County is its diversity: The metropolitan boasts access to a “research university, access to venture capital, and a trained workforce,” according to ULI, which helps drive “the creation of startups in software, medical devices, and biotechnology.” As a result, Orange County should continue to boast high-earning residents at all stages of the real estate cycle, from multifamily all the way to prospective homeowners.
Inland Empire offers another important opportunity for multifamily markets primarily due to its job recovery in the industrial market. As warehousing firms and logistics companies continue to grow within IE, residents are attracted to strong, stable careers in an area that is seen as a low-cost alternative to many other Southern California markets.
While Inland Empire can be susceptible to recessions due to its heavy reliance on international trade and importing jobs at ports in Los Angeles and Long Beach, ULI remains cautiously optimistic. The Institute recommends that investors either buy or keep their assets in Inland Empire for 2017.
Indianapolis looks to remain a key market in 2017, again attributable to emerging jobs within tech fields in Indiana. With a rise in downtown development, Indianapolis has been able to attract millennials and technology workers by developing an urban core alongside strong suburban markets.
The Indianapolis market “has already committed to mass transit spending,” which bodes well for a strong urban core of multifamily assets.
The final city on our roundup of the 10 multifamily markets to watch in 2017 is Los Angeles. California’s most populous city continues to perform strongly in nearly all aspects of real estate investment, but 2017 presents a unique opportunity for multifamily in LA. Behind the Bay Area, Los Angeles has the highest predicted increase of annualized growth income for 2017 according to Freddie Mac. In addition, LA’s vacancy rates are only expected to rise by a fraction of a percent, making this market an important one to watch in the upcoming year.
New supply in Los Angeles is being kept in check by communities who are growing more resistant to new development; as a result, vacancy rates are expected to stay low. At the same time, LA is continuing to develop mass transit to combat issues with traffic and congestion, while adding high-paying jobs in technology and entertainment. As a result, Los Angeles continues to capture the attention of multifamily real estate investors, as the city continues to attract the best of a highly skilled and highly paid labor pool.
For more information on how to better market your multifamily property, be sure to get in touch with us today!