Marcus & Millichap wrapped up the MFE Conference with humor and wisdom, sharing their insights and predictions for the apartment market as the industry heads into 2008.
Starting with a quick look backwards, Hessam Nadji, managing director of research services for Marcus & Millichap's National Multi Housing Group, honed in on the aftermath of the subprime lending debacle--including the $500 billion of real estate that will likely need to be sold at a 50 percent discount in the coming months. Still, that loss should not be cause for alarm. "The anxiety in the marketplace has to do with uncertainty and the psychological factors of all this," Nadji said. "But statistically, this isn't a major issue because it's a $250 billion loss in a $13.5 trillion economy."
Turning his attention to the economy, Nadji said that corporate economic health is in good shape and many markets have solid employment growth?Salt Lake City, Austin, and New Orleans topped the list. "To avoid a recession, I think we're going to see a much slower growth rate in the next year," he said.
Thankfully, demographic trends are in favor of the multifamily industry, with 80 million baby boomers nearing retirement and a wave of 70 million echo boomers entering their prime renting and condo ownership years, Nadji added. The growth of this segment of the population has helped lower vacancy rates and push rent growth in 2007?a trend that will likely continue into 2008.
Overall, Nadji expect the economy to remain strong, though slow. Apartment demand will increase, while a few markets--such as Miami and Washington, D.C.?will be forced to deal with the overhang of excess homes and condos.
Meanwhile, Nadji's colleague, Linwood Thompson, managing director of Marcus & Millichap's National Multi Housing Group, offered some observations on the current market and forecasts for the future. Recognizing that spreads have widened, Thompson said that he believes there will continue to be pain in the margins of the for-sale sector. However, apartment acquisition opportunities will remain strong into 2008.
"From an investment strategy, there is value in the middle markets," he said. "I would be looking at that $10 million to $20 million area." Thompson went on to say that he finds great value in the primary markets of the Midwest and Southeast.
In 2008, expect to see investment increase and possibly a slight increase in cap rates. Overall, "there is a continued case for optimism," Thompson reported, citing the growing echo boomer and immigrant demographics and the new limits on supply in the multifamily sector. "I remain bullish on apartments," he added. "I think you're going to see significant pressure on rents unlike anything this industry has seen before."