As Q2 2016 comes to a steady close, analysts and professional across commercial real estate are composing their multifamilypositive outlook on the future. Two recent write-ups published by GlobeSt.com caught our attention this week by offering a positive outlook on some markets while cautioning others about a potential downturn.
In California CRE, Caution Across Markets, Strength in Multifamily
Localized to California, commercial real estate professionals are having mixed feelings about the long term viability of some markets. Kelsi Maree Borland of GlobeSt gained exclusive access to forthcoming data in the Allen Matkins/UCLA Anderson Forecast Survey which asks California commercial real estate professional to provide their three-year market outlook across all sectors. The report suggests that many professionals are bracing for a possible downturn in retail and office transactions after many years of fast-paced sales. Unlike in the past, this preparation is tangible, and if affecting decisions being made by investors before purchasing a building. “When you are in an up cycle, people wonder when it is going to end, but they never change their actions. Now, people are starting to change their actions,” explains Tony Natsis, a partner at Allen Matkin cited by Borland in the article as an expert, “They are saying, ‘I don’t want to be standing at the end of this musical chairs game.”
Although the survey suggests a stormy viewpoint for retail and office transactions in the near future, industrial and multifamily transactions were given an “overwhelmingly bright outlook”. Borland suggests that multifamily in particular has a tangible demand that will continue into the foreseeable future, further supporting the idea that although interest in retail is always ebbing and flowing, people are always looking for a place to live. Natsis also suggests that a desire for more places to live and industry relocation will keep the market strong. “Multifamily is fine because the workforce generation doesn’t want to return home and live there, and they are making a decent amount of money, so they want to rent something” Natsis elaborates “You have a huge explosion of tech hubs, and you need someplace to house them. Doesn’t surprise me at all that multifamily is still doing well.” This positive outlook for the multifamily market in California is shared at the national level as well, though another study warns over-supply could change the market for some investors.
B and C Class Building Come Out Ahead Nationally
Released Thursday, the National Multifamily Housing Council’s Quarterly Survey suggests mixed conditions for Q2 2016 within the national multifamily market. Mark Obrinsky, NMHC’s Senior Vice-President tells Paul Bubny in a recent GlobeSt report that multifamily remains strong, but warns investors that oversupply may have an effect on Class-A buildings. “The surge of new apartment construction is starting to shift the supply-demand balance, particularly in the market for upscale apartments,” Mark Obrinsky tells GlobeSt, “Given that most new supply is class A, we’re not seeing the same shift in class B and C apartments. In addition, some weakness in the Market Tightness Index may be just seasonality.” The Market Tightness he refers to is in the evaluation of market strength. As Bubny notes, “For the third quarter in a row, the Market Tightness (43) and Equity Financing (44) Indexes remained below the indexes’ break-even level of 50, which indicates that conditions have not changed from the prior quarter.” This lack of change in Market Tightness provides tangible evidence of supply starting to meet demand at the national level.
Ending on a high note, the report suggest that many senior-level apartment executives are seeing optimism in the multifamily. Bubny noted that “of the 119 CEOs and other senior-level apartment executives surveyed think prices are “frothy.” Further explaining that “this means multifamily investors are likely to be satisfied as long as current trends in NOI continue and cap rates don’t back up.” Between long term positive outlook suggested in the Allen Matkins/UCLA Anderson Forecast Survey and the strength of the market suggested by the National Multifamily Housing Council’s Quarterly Survey, it continues to be a great time to invest in B and C level multifamily for steady conditions and quality offerings.
Kelsi Maree Borland’s GlobeSt.com article can be found HERE.
Paul Bubny’s GlobrSt.com article can be found HERE.