Everyone knows the “sexy six” markets are the big multifamily hot spots of investment and development.
The large metro markets— New York, Los Angeles, San Francisco, Boston, Washington, D.C., and Seattle — are sound bets in 2014, but some are stronger than others, experts say.
Greg Willett, Texas-based MPF Research's vice president of research and analysis, says Seattle is the strongest top market for 2014. Although the Seattle market has a lot of new product in the pipeline, he feels job growth will be able to support the uptick in development.
“I think, also, something that will come into play in the next couple of years as we are delivering a lot of new product in these markets is operational expertise,” he says. “These are places where traditionally the operators struggle to digest new product because they rarely have that experience but in Seattle, you occasionally get these bursts of new supply and they know what to do.”
While Seattle may look appealing to Willett, Alex Goldfarb ranks San Francisco as having the best outlook for the upcoming year.
Goldfarb, managing director of equity research of REITs for New York–based Sandler O’Neill + Partners, believes the technology market’s growth is fueling the multifamily housing pressure as people move to the Bay Area for jobs.
“Companies have offices down the peninsula, so they’re opening offices here and people need a place to live,” he says. “It’s tough for tenants but great for landlords.”
But looking out five to 10 years into the future, Goldfarb expects the Sexy Six to become less appealing and lose some of their luster.
“In San Francisco—it’s all tech fields,” he says. “But if you go to Texas, it’s not just energy. It’s all the different fields that are doing well.”
Dallas, Houston and Charlotte, N.C. may become the newer, sexier metropolitan areas of the future, Goldfarb says.
“I think the Sunbelt will emerge as a very healthy strong area,” he says.
Willett agreed and noted Houston is a strong contender for breaking into the top major multifamily markets in the near future.
“Maybe, at this point, what prevents it from being in that category is it’s a lower priced market,” he says. “If your goal is deploy a lot of capital, you have to buy three properties in Houston for every one you would buy in San Francisco or New York.”
Washington, D.C. Grows Homely
Pricing is also a major point of contention in the Washington, D.C. market. Both Willett and Goldfarb agree that the district will be the least sexy largest metro area in the upcoming year.
“D.C. is the most challenged just because of the new construction volume and how long it’s been going on and how sustained it looks like it’s going to be,” Willett says.
The outlook for the Washington, D.C. area next year is less than exciting as policy-makers continue to bicker on Capitol Hill and local government workers look unfavorably on job stability, industry experts say.
“One, you’ve got Washington dysfunction and two, you have a lot of supply coming up,” Goldfarb says. “That’s just going to weigh on rent growth.”
Lindsay Machak is an Associate Editor for Multifamily Executive. Connect with her on Twitter @LMachak.