Commercial real estate and investment firm CBRE recently announced that it expects 280,000 multifamily units to be delivered in 2019. While this number represents a slight decline from 2018’s 290,300 units, this projection shows that multifamily growth is still strong—especially when compared to historical averages. Although it is wise to temper expectations as we reach maturity in the current economic cycle, there are no signs that indicate another recession is immediately imminent in the greater economy nor within the commercial real estate industry.
According to CBRE, all four commercial real estate asset types—multifamily, office, retail, and industrial—have retained a very good outlook for 2019. Recent economic gains, like employment and consumer confidence growth, have bolstered the office and retail asset classes, while demand continues to drive the evolving industrial asset class. In the multifamily asset class, lenders and developers have resisted the temptation to overbuild, which benefits investors as demand and rents remain steady, allowing for absorption as units are completed.
Multifamily B and C class properties also remain a smart choice for savvy investors. The demand for these properties is still hovering near its highs—pushing rents up—and since the housing market’s recovery, vacancy rates have remained lower than normal, especially compared to A class properties. West Coast cities like Los Angeles and San Francisco should continue to blaze the trail for multifamily growth outside of New York. They are expected to maintain strong rents over the coming year, further buffeting the value of multifamily investments.
However, 2019 is poised to be a year of transition for the economy as global growth slows and geopolitical concerns like tariffs batter already-vulnerable markets. This slowdown seems poised to hit the stock market harder in 2019 than in past years, particularly within the traditionally volatile tech sector. If volatility reaches a tipping point in 2019, it could cause a ripple effect that affects rent prices and occupancy in the rental space. But economic trends generally don’t support this pessimistic approach, with compensating factors like low inflation, strong job growth, and improving wage increases providing macro level tailwinds.
Fortunately for investors, the multifamily housing market appears more stable than other asset classes, suggesting that investors remain bullish when it comes to maintaining solid ROI as we transition out of rapid economic expansion. Despite softening growth, intelligent investors will begin to adjust their investment valuation and strategy as the market continues to mature.