Whether you liked economics class or not, I know you like the result of supply and demand if it provides better NOIs.
Limited supply helps to protect the value of existing multifamily properties, and too much supply will hurt the rents and appreciation of the properties.
Central PA & Northern MD markets have been protected from significant price changes in the multifamily sector because of solid fundamentals in our market.
Here at Capstone, we track the apartment projects in our local market so we can better understand how the future value of existing stock may be affected. Today, we are sharing the results of our yearly summary on the current apartment market. This also allows an understanding of where more stock may be needed if you are a builder, or ideal areas to buy that have limited supply if you are an investor.
- Because of the pullback in lending from banks over the course of the past year, along with higher interest rates and lower rent increases, many multifamily projects have been shelved.
- This will create upward pressure on rents within our current apartment markets for any multifamily owner, as people have limited options without a lot of new supply coming in.
- Continued price increases and limited inventory in the for-sale market have caused many would-be homebuyers to continue to rent.
- Our increasing population will create more competition for housing product, which will continue to drive rents upward due to less available product in both the for sale and for rent markets.
Value-Add Tips
- Look for markets with the highest barrier to entry for new product. This is where the rent increases for any class of multifamily will be the greatest, and subsequently have the greatest appreciation.
- The supply and demand metrics have stayed closely aligned in the Central PA and Northern MD markets, but the rents in our current apartment market have stayed very strong even with occupancy rates remaining greater than 95%.
- Consider a condo conversion project on appropriate properties to capitalize on the price increases and lack of available product in for sale housing.
If you’re looking for insights into areas of growth to step up your portfolio, we are available to provide guidance on buying, selling, and building multifamily assets.
Contact us today for insights into portfolio strategy in the local markets.
Sources
Esri, CoStar, U.S. Census, U.S. Bureau of Economic Analysis, Capstone Commercial Data, PA Department of Labor & Industry
Notes on Methodology
- Demand for renter units was factored by comparing the expected growth in households against the renter percentage.
- Household growth rates come from Esri Executive Summaries.
- Unemployment rates pulled from PA Labor & Industry statistics.
- CAP rates were taken from public-record sales that Capstone tracks, as well as our in-house data.
- CAP rate was factored with 5% vacancy for Class A & B properties, 7 % vacancy for Class C properties, and a 7% management fee for all classes.
