For the fifth year running, JLL chief economist Ryan Severino and Marcus & Millichap first vice president and national director John Sebree have teamed up to present the Annual Economic Outlook session at the 2019 Multifamily Executive Conference, Oct. 2 to 4, at the Bellagio Hotel in Las Vegas.
The general session, which will be moderated by National Multifamily Housing Council vice president of capital markets Dave Borsos, will highlight the economic trends and events that will have the greatest impact on the industry over the next three to six years, as well as the opportunities they may create for investors and developers.
Ahead of October’s conference, MFE caught up with Sebree and Severino for a preview of their multifamily forecast.
MFE: Which current economic conditions will have the greatest impact on multifamily companies?
Severino: Right now, as indirect as it seems, trade policy because of the systematic implications for the economy. With interest rates declining, trade policy becomes key because the entire economy hinges on it.
Sebree: The economic imbalance between supply and demand. We have very high occupancy levels for all multifamily, especially Class C and B, and our household growth continues to rise at a rate higher than new product is being delivered. In addition, the majority of that new product can only be at the higher income levels. As a result, you have substantially increased demand for workforce housing and no new supply being created. I think those dynamics will continue to drive and influence what’s happening in the multifamily market over the next few years.
You have some politicians who have taken this as an opportunity to take a stand in support of rent control. And the unfortunate aspect comes when you look at the cause of that issue, which is more demand than supply. The way to solve that is to create more supply and balance out the economic scale. Rent control does nothing to create more supply, and most economists would argue it actually stymies new development.
MFE: How can multifamily companies prepare for future economic conditions?
Severino: My best advice is to guard against complacency. When economic cycles run long (and this one is the longest in recorded history), people have a tendency to let their guard down about potential trouble. Predicting a recession is a fool’s errand, but it is highly probable that the economy is slowing. Companies should game plan for at least that scenario, if not an outright recession.
Sebree: With fundamentals for multifamily being so strong, I think multifamily investors who are looking for opportunity and yield over the next few years are probably going to need to look into areas where they have not looked in the past, maybe tertiary markets or small towns. The dynamics are going to be different from owning and operating in a large metropolitan area, but they will likely be able to generate higher yields than they would otherwise.
In most metropolitan areas, the suburban areas are doing quite well. At the same time, over the past 15 to 20 years, the urban core has been revitalized. The area inside the beltway but outside of the urban core, a lot of those neighborhoods are improving because of the increased demand and the limited supply. A lot of investors are finding opportunities in those neighborhoods as a way to get in front of the curve, purchasing properties where there is upside potential by doing a value-add play and increasing returns.
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Hear more insight from Severino and Sebree on Oct. 2 at the MFE Conference. Attendance is reserved exclusively for multifamily industry property executives, developers, architects, builders, and other real estate executives.
