Special Report

Reopening Market Facilitates Rental Demand Growth;
Capital In-Migration Buoys Recovering Investment

• Multifamily market dynamics return to pre-pandemic levels. While the metro’s job recovery continues at an above national pace, total employment will have yet to surpass the pre-pandemic peak by the end of this year. In contrast to the city’s slower labor recovery, multifamily fundamentals had already returned to pre-2020 values by the end of last year. A general reopening of urban amenities underscored the appeal of living in New York City and brought back some in-person jobs, helping lower vacancy across all building classes to figures comparable to before the health crisis.
• Investment market springs back to life, but room for growth remains. Following surging trade activity throughout 2021, investor demand may dip this year while staying well above health crisis lows. As pent-up buyer fervor dissipates, potential regulatory changes could spark sudden shifts to market behavior. Following measures passed in other cities across the state, New York City is considering a “good cause eviction” policy, introducing among other regulations an effective rent-growth cap of 5 percent.

2022 Market Forecast

• Employment (up 3.5%) – Employers will expand payroll counts by 150,000 positions this year, faster than the national average of 2.5 percent.
• Construction (17,000 units) – Developers will finalize 1,000 fewer units this year than the 18,000 completed throughout 2021. Stock is scheduled to expand by 0.8 percent, the smallest margin in six years.
• Vacancy (up 10 bps) – High renter demand keeps net absorption above the trailing-five-year average as vacancy declines to 2.0 percent due to a combination of returning and new renters entering the market.
• Rent (up 2.2%) – Slower inventory growth and high housing demand keep effective rent growth above the historical market average as rent hits a mean of $2,815 per month in 2022.
• Investment – Class B cap rates could face downward pressure due to renewed investor interest, while regulatory uncertainty may prompt some private investors to seek deals outside New York City.

*Estimate; ** Forecast
Sources: CoStar Group, Inc.; Real Capital Analytics; RealPage, Inc.

Metro-level employment, vacancy and effective rents are year-end figures and are based on the most up-to-date information available as of December 2021. Effective rent is equal to asking rent less concessions. Average prices and cap rates are a function of the age, class and geographic area of the properties trading and therefore may not be representative of the market as a whole. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. Forecasts for employment and apartment data are made during the fourth quarter and represent estimates of future performance. No representation, warranty or guarantee, express or implied may be made as to the accuracy or reliability of the information contained herein. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice.

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Supply Growth Overshoots Normalizing Rental Demand;
Regulatory Changes Drive Investment Trends

• Last year’s employment surge along the Hudson drives current stock expansion. After a year of surging rents and declining vacancy, Northern New Jersey is projected to experience a year of effective rent growth and multifamily occupancy closer to the trailing decadelong average. Renter demand growth is expected to slow yet remain strong due to the area’s mix of endemic and exogenous demand factors.
• Pandemic aftershocks and nearby regulatory changes drive local market activity. Due to yearlong eviction moratoriums and pandemic-related regulatory issues on both the federal and state levels in New Jersey, many longtime owners who were formerly hesitant to sell chose to put their properties on the market in 2021. If adopted across the river in New York City, “good cause eviction” legislation already signed into law in several upstate New York localities may push capital migration west of the Hudson.

2022 Market Forecast

• Employment (up 2.0%) – Job growth will be modest in 2022 with 40,000 new positions, leaving the area still short of pre-pandemic employment.
• Construction (12,000 units) – While nationwide construction delays and material shortages continue, developers are expected to finalize 3,000 more units than in 2021 by the end of this year.
• Vacancy (up 30 bps) – The market observes a slight bump in vacancy to 4.5 percent due to the high amount of construction projects slated for 2022, exceeding more modest local demand.
• Rent (up 2.4%) – Rent growth tapers from 2021’s record pace, but maintains a rate comparable to the trailing five-year average as effective rent reaches an average of $2,125 per month.
• Investment – Last year’s compression of cap rates continues marketwide. Investors seeking higher yields on Class C complexes may seek Passaic County deals where offers can hit the 6 percent tranche.

*Estimate; ** Forecast
Sources: CoStar Group, Inc.; Real Capital Analytics; RealPage, Inc.

Metro-level employment, vacancy and effective rents are year-end figures and are based on the most up-to-date information available as of December 2021. Effective rent is equal to asking rent less concessions. Average prices and cap rates are a function of the age, class and geographic area of the properties trading and therefore may not be representative of the market as a whole. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. Forecasts for employment and apartment data are made during the fourth quarter and represent estimates of future performance. No representation, warranty or guarantee, express or implied may be made as to the accuracy or reliability of the information contained herein. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice.

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Rapid Development Along Commuter Infrastructure;
Investors and Renters Move In From Nearby Markets

• Last year’s demand surge spurs supply growth in coastal urban cores. Many property developers expect more renters in southwestern Connecticut, evidenced by high supply growth in the local multifamily sector. The area’s construction pipeline delivered nearly 2,000 units last year, with another 2,300 apartments expected in 2022.
• Investors faced with lower yields and new demand drivers. The release of pent-up investor demand compressed yields across all segments of the region’s diverse multifamily market. In Fairfield elevated activity in Stamford’s urban core compressed rates to around 4.5 percent, while suburban multifamily housing dipped to just above 5 percent.

2022 Market Forecast

• Employment (up 1.6%) – After last year’s surge, the market adds 12,000 new jobs in 2022, the second highest net increase since 1998.
• Construction (2,300 units) – New unit completions are projected to surpass last year’s steady pace through 2022, with builders delivering roughly 350 more units than completed in 2021.
• Vacancy (up 50 bps) – Normalizing job growth is outweighed by a large delivery volume, pushing vacancy up to 3.1 percent, the largest increase in the market since 2015.
• Rent (up 2.2%) – Effective rent increases stabilize after passing $2,000 per month in 2021, slowing to 2.2 percent as year-over-year rent growth returns to market norms.
• Investment – Capital migration from New York intensifies as investors flow to submarkets with lighter regulations, leading to downward pressure on cap rates across all property types.

*Estimate; ** Forecast
Sources: CoStar Group, Inc.; Real Capital Analytics; RealPage, Inc.

Metro-level employment, vacancy and effective rents are year-end figures and are based on the most up-to-date information available as of December 2021. Effective rent is equal to asking rent less concessions. Average prices and cap rates are a function of the age, class and geographic area of the properties trading and therefore may not be representative of the market as a whole. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. Forecasts for employment and apartment data are made during the fourth quarter and represent estimates of future performance. No representation, warranty or guarantee, express or implied may be made as to the accuracy or reliability of the information contained herein. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice.

Download the Full Report Here

Will Multifamily’s Record Performance Carry into 2022? Trends, Insights, and Outlook for 46 Markets

The health crisis unlocked a wave of changes to the economy and housing market that transformed the multifamily investment landscape. To help investors adapt to and capitalize on the unprecedented climate, the 2022 Multifamily Investment Forecast offers deep insight on the performance, investment and financing landscape for the coming year.

Key Features Include:

• 2022 economic, housing and demographic outlooks
• Apartment market index rankings
• Supply and demand forecasts for every market

Click to Download Full 2022 U.S. Multifamily Investment Forecast Report from Marcus & Millichap Research Services