There’s no question that the multifamily industry is growing, but nobody can know for sure how long the good times will last.
Four multifamily experts give their take on where the industry is in the cycle and what’s in store for the next year:
“We are mindful of particular markets around the country that are vulnerable to large amounts of new supply coming on line, which may only temper growth but not necessarily lead to a downturn,” he says. “But if interest rates rise too quickly or ‘spike’, then we could easily see a pendulum shift in multifamily, especially if combined with a plateau or decline in effective rents.”
Jared Ford, senior vice president of construction at Charlotte-based Crescent Communities, believes there’s a lot of juice left in the multifamily battery for the next year and beyond.
“While new deliveries ramped up over the last year, occupancy and rent growth have remained at or above historical norms as a result of pent-up demand and historically low levels of supply between 2009-2012,” he says. “ Also, the last couple years have produced remarkable increases in construction costs, but the rate of growth has tapered off, especially in material price escalation. “
Ford compared the cycle to a baseball game that has potential to go into extra innings.
“With a couple select markets as exceptions, rental rates are still increasing, and that combined with insufficient supply the last couple years and reduced price inflation provides optimism for the current cycle to extend past the 9th inning,” he says.
Tom Bozzuto agrees that the upturn’s longevity varies depending on what part of the country being evaluated.
Bozzuto, CEO of Greenbelt, Md.-based The Bozzuto Group, says many markets have approached the point where rents can be aggressively pushed while many other markets will reach this point in the upcoming year.
“In a good number of regions this year, the focus will be on keeping properties full, reducing loss-to-lease where possible, minimizing concessions and getting new properties leased up,” he says. “Since we seem to be in somewhat of an economic recovery however, I suspect that within a relatively short time—a year or two at the most, the market should stabilize, new properties lease-up, and our ability to resume raising rents should take over.”
Being at the top of the upturn may have costly effects on construction, says Marc Padgett.
Padgett, a principal with Jacksonville, Fla.-based builder Summit Contracting Group, says the increasing demand for building apartments has caused a shortage in labor.
“These shortages have resulted in increased costs for labor in all trades but most predominately in framing and drywall,” he says. “In addition to labor shortages we have seen large material increases as well that are a result of the high demand. In some cases the pricing has gotten to the point that substantial value engineering and creative design was necessary to allow a project to fall within the budget guidelines.”
If costs continue to increase, multifamily construction could be forced to slow down.
“We can’t say for sure that this will happen in 2014 but can be fairly confident that if costs continue upward as they have it will not be too far off,” Padgett says.
Lindsay Machak is an Associate Editor for Multifamily Executive. Connect with her on Twitter @LMachak.