Keeping an eye on Multifamily Growth
It is really no secret that the multifamily sector is booming. Consider that the overall vacancy rate for rental housing in the United States fell to 6.4% in the fourth quarter of 2019. This represents the lowest vacancy rate since the second quarter of 1985, according to the Census Bureau. New construction of apartment complexes and condos rose 29.8 percent in December to their highest level since 1986. And, approximately 340,000 new apartments are expected to be built in 2020.
Several factors are driving this significant growth in multifamily. First, an abundance of both equity and debt capital will continue to drive multifamily development. The U.S. is still seen as a safe haven, so capital continues to pour in from investors abroad. Many domestic investors see multifamily as the asset class best positioned to whether a potential downturn and are over-weighting their allocations into multifamily as a result. Finally, long-term interest rates have fallen and appear stable in the near term. Given the now widening gap between US Treasury rates and capitalization rates, continued strong demand for US assets and limited investment alternatives abroad, there is growing sentiment that cap rates might actually contract in 2020.
Approximately 340,000 apartments are expected to be built this year.
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