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Developers of Multifamily Properties Relying on Continued Demand


In spite of there being literally hundreds of thousands of apartments currently under construction in softened multifamily markets around the country and with most taking upwards of two years to complete, a significant number of developers is forging ahead with new projects.

As stated by Ryan Severino, associate director and senior economist with the New York-based data firm, Reis, Inc., it is kind of like arriving late for a big event and there being little to offer. He added that in the end, there is always overdevelopment.

Economic Recovery

While many industries that have moved forward cautiously during the economic recovery period, because things are getting better and demographics are solid, many developers still believe there is great demand for apartments. However, to steer clear of any competition, many of these developers are looking specifically at markets and submarkets with little new construction.

According to Reis projections, by the end of 2017 approximately 161,000 new apartments will be complete. Now, that number is certainly less than the anticipated 197,000 apartments for next year and substantially fewer than the 230,000 for 2015 but it remains healthy. For comparison sake, only 120,000 new apartments have been constructed annually during that past several years, which excludes affordable housing units through government programs that produce over 100,000 units each year.

Severino went on to say that from all appearances, the floodgates have opened. In looking at demand from a demographics standpoint, this new supply well surpasses expectations. In the next two years, apartments available for rent from this year and next will leave slack in the market. There will be approximately 5.5 percent vacant apartments in the United States, 1.5 percent over Reis projections. However, that shows that expansion of multifamily unit vacancies will not be substantial.

In other words, the rate of vacancies in 2017 will not be higher. The reason is because of continuing demand for apartments that will fill a large number of new units built by developers. Instead, there will be a challenge pertaining to supply opposed to demand.

Positive Demographics

By 2017, demographics will still be positive specific to the apartment business, something that has played a huge role in the recovery of the apartment business during the recession. Even the timing of the recovery will have a huge impact on the apartment sector within the next two years.

Experts agree that unless there is some major and unforeseen hiccup, the apartment business should continue to thrive, possibly pushing demand even higher than what is currently seen. Just as some developers will experience success by facing competition head-on, there will be some that do well by avoiding it.

Most of the planned multifamily developments slated for 2017 will be high-end. In fact, a lot of the apartments will be built in major central business districts, something that is a huge attraction to millennials. For a long time, people preferred suburban living but in the past several years, there has been a significant shift to urban life.

By building in urban locations but also cities left out of the development boom like Sacramento and Las Vegas, the apartment sector is expected to not just thrive but significantly grow in the coming years.

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