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Why The Multifamily Market Still Has Room To Run

November 18, 2016

Why The Multifamily Market Still Has Room To Run

NOVEMBER 18, 2016 | BY CARRIE ROSSENFELD | GlobeSt.com

Population and demographic trends like reduced homeownership and Millennials delaying marriage and children create long-term structural advantages for multifamily that other sectors lack, Colliers’ Andrew Nelson tells GlobeSt.com EXCLUSIVELY.

Nelson: “Many people are willing to spend a greater share of their income on rent, so rent’s share of the household budget has been going up. But there is a limit to just how far it can go.”
Nelson: “Many people are willing to spend a greater share of their income on rent, so rent’s share of the household budget has been going up. But there is a limit to just how far it can go.”

SAN FRANCISCO—Population and demographic trends like reduced homeownership and millennials delaying marriage and children create long-term structural advantages for multifamily that other sectors lack, according to Colliers International’s chief economist Andrew Nelson. As the company readies its latest multifamily spotlight, GlobeSt.com spoke exclusively with Nelson, along with Cindy H. Cooke, senior EVP of multifamily investments, and Will Mathews, VP and principal for Colliers’ multifamily advisory group in the East region, about what puts multifamily in the driver’s seat among commercial asset classes, and why investors still see opportunity in the sector.

As a result of urbanization and millennials’ propensity for renting over buying, Nelson says multifamily occupancy rates are near a historical high. While he does expect them to level off, the multifamily market will remain fundamentally sound.

“Colliers research shows that cap rates for apartments averaged 5.4% in Q3, the lowest of any property type, which reflects the high regard the sector is held in by investors, particularly foreign investors who are willing to pay for stable cash flows.”

Rent growth has moved much faster than household income in recent years, which means renters are paying an increasing share of their income on rents. Nelson says there is a limit to how much renters can bear and some of the more expensive markets are starting to inch closer to that limit. But while the rate of multifamily growth is expected to slow, there remains a lot of upside, he says.

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