Multifamily vacancy nationwide is expected to rise slightly as developers keep up the rapid pace of building set over the last few years.
Vacancy is expected to rise 20 basis points to 4.5 percent, according to a CBRE’s 2020 market outlook report. Rent growth is expected to slow to 2.4 percent for the year, below the 2.6 percent long-term average.
Developers are expected to deliver an estimated 280,000 units across the country, on par with last year and continuing the 260,000-plus deliveries pace set and maintained since 2016. Starts and permits, indications of future supply, are expected to drop throughout the year.
High pricing for homes across the U.S. means millennials are moving to homeownership “at a modest pace,” and demand for the year is projected at 240,000 units, around 20 percent lower than demand in 2019.
CBRE predicts that Austin, Atlanta, Phoenix, and Boston will be the top performing markets of the year, but that overall suburban multifamily will outperform urban multifamily in terms of returns and rent growth.
Multifamily developers have already shifted their gaze toward some smaller metro areas and the suburbs, where mid-rise and garden apartment projects are becoming a more common sight.
In particular, CBRE pointed to four small metros — with populations under 2 million people — expected to outperform others next year: Albuquerque, Birmingham, Colorado Springs, Greensboro, Memphis, Dayton, and Tucson. Each saw rents rise by 4 percent or more in the third quarter of 2019.
Recent rent control reforms passed in New York, California, and Oregon contributed to drops in investment activity during the first eight months of 2019 in some cities in those states, including New York City and the Greater Los Angeles Area, but not others. The San Francisco Bay Area and Portland saw 7.4 percent and 23.5 percent increases in activity year-over-year, respectively, meaning development will likely keep up in 2020.