Growth in the Multi-Family Sector

In 2014, multi-family experienced strong rent growth averaging an estimated 5.9 percent in all segments: Lifestyle, Class A, B+ as well as B and C buildings across most areas of the U.S. Demand by both renters and investors was unabated. New supply coming online increased, but it did not have a material impact on vacancy rates in most markets. Washington, D.C. and Northern Virginia were the exception with no real rent growth due partially to decreases in high paying government jobs and increases in sectors with lower wage jobs. With interest rates remaining historically low, investors have found still lower cap rates and fierce demand for available properties.

2015 looks to be another banner year for the multi-family segement. Average rent growth is projected to be lower than 2014, but still strong with increases of 4 to 5% in most markets. Expectations are at the lower end of that range for Lifestyle, Class A and B+ buildings and at the higher end for Necessity, Class B and C buildings. The West (Denver to the Pacific) continues to show its dominance with 7 of the projected top 10 rent growth markets in the U.S.  In high demand locations of the Bay Area rents are projected to top over 8% growth. On the other hand, new inventory will start to impact certain markets such as Charolotte, N.C. and Albuquerque, N.M. Metro Los Angeles rental rate increases are projected at 3.5% due to increased supply. For investors, cap rates are projected to remain stable (at historic lows) with a limited supply of buildings compared to high demand.