Both buyers and sellers have faced challenges and opportunities in 2018. The available housing inventory is more than 10 percent lower this year than last year, yet some industry experts say residential loan values and increasing housing starts signal good news ahead. As investors closely watch the market supply and demand fluctuations, there is one real estate investment vehicle consistently outperforming other properties. Apartments. Newly available research proves what industry experts have been saying for years. Apartments, compared with other asset property types, have a strong performance history and will likely continue to outperform in the foreseeable future.
Multifamily Housing Is On the Rise
As 2016 closed, apartment homes held a $128 billion market value, 24.3 percent of the NCREIF Property Index. While total value came in a few points higher than the average over the past few decades, this phenomenal performance wasn’t a one-time showing. Research released by Dr. Mark Eppli, Marquette University, and Dr. Charles C Tu, University of San Diego, shows neither geographic markets nor holding periods had little impact on apartment market performance.
If demand continues to outpace supply, industry analysts warn we must add 4.6 million new apartment homes in the next 12 years to meet the pressing need for new units. Since many multifamily homes were built more than 40 years ago, millions of existing units may soon need major renovations. This is good news for investors looking for a hedge against inflation via positive property appreciation and robust returns. Outperformance also presents extraordinary opportunities for property management firms. With approximately 250-350 million units entering the market each year, developers, owners, and builders will be looking for partners to manage their assets.
Make Outperformance Your Mantra
The future looks bright even though there will be some challenges ahead. It isn’t easy to build multifamily housing. It can take years of planning for a developer to reach the breaking ground stage. Most of the new construction projects on the books today are for the high-end, upper tier consumer. Some worry that the industry isn’t doing enough to meet the needs of lower wage earners and empty-nesters living on fixed incomes. It’s true, barriers to affordable housing are numerous and often difficult to overcome, but organizations are emerging who are committed to building public-private sector relationships that support new apartment construction tailored to meet the unique needs of diverse communities across the U.S.
What does strong apartment sector performance mean for property management companies? It’s time to make “outperformance” your mantra. Support initiatives to make building apartment homes (or renovating existing ones) easier in your neighborhood. Model your business plan around providing state-of-the-art technology that supports superior customer service. Invest in training your staff and getting to know the people you serve better. The opportunity for improving financial health is there.
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