4 Multifamily Trends We're Watching into 2023

Wednesday, May 3, 2023

4 Multifamily Trends We're Watching into 2023

Everyone has eyes on the multifamily market activity as we move into the new year. Here’s a list of the four biggest multifamily trends we’re watching in 2022 and 2023.

#1. How Interest Rates Boost Multifamily Occupancy

As the Federal Reserve continues to hike interest rates to combat inflation, we’re seeing multifamily reap some unexpected rewards.

Because the interest rates on mortgage loans are increasing and it’s becoming more expensive to receive funding for a home purchase, many buyers are choosing to hold off. As potential buyers choose not to go through with their real estate transactions or wait until the market stabilizes, people rent for longer.

According to the 2022 Midyear Commerical Real Estate Outlook report published by JPMorgan, the multifamily market is set to remain strong due to high home prices and increasing mortgage rates. Multifamily vacancies are expected to stay low even as rent prices continue to increase.

As we move into the new year, pay close attention to interest rates and housing prices in the residential real estate market.

High-interest rates and expensive housing prices for single-family homes will likely continue to boost the multifamily market throughout 2023.

When the residential market factors begin to normalize, it could signify that the multifamily market will also rebalance — which could look like a drop in performance. However, it may be that the market is stabilizing after significantly strong activity for the past few years.

#2. Creative Reuse and Renovation Address Affordability Crisis

The nationwide supply of affordable housing is expected to remain low throughout 2023. The need for affordable housing opportunities impacts multifamily, and one of the most popular solutions will be creative reuse projects and modernizing renovations.

Turning other commercial real estate asset classes into multifamily buildings is expected to become commonplace in the 2023 market as more investors and developers respond to the need for more housing at affordable rates.

Renovating existing multifamily buildings to become affordable housing options will also be a way for property owners to pivot to increase the performance of their multifamily assets. Since the demand for affordable multifamily units is characteristically high, this will be an attractive investment decision for the market.

#3. The Workforce Turns to Multifamily

As more workforce members finally return to the office, the demand for metropolitan apartments will likely remain high. According to Victor Calanog, Head of CRE Economics at Moody’s Analytics, the combined factors of the national housing shortage and high single-family home prices position workforce housing as a promising investment for multifamily investors.

Targeting urban environments and nearby professional market hubs could strengthen the performance of multifamily buildings looking to appeal to tenants in the workforce. To help position multifamily assets as attractive options, renovating and modernizing the building could be helpful — particularly if the building is older.

Another key consideration for positioning a multifamily building to target the workforce is the need for a strong internet connection. Your building should have great connectivity for both cellular and WiFi needs.

Many tenants will work from home, either a few days a week for their hybrid positions or full-time remote jobs. Ensuring that your building has a stable connectivity infrastructure is essential for creating a viable work environment for these tenants.

Some buildings offer WiFi plans to attract and retain tenants. At the very least, the building needs to support cell and WiFi — not be a connectivity dead zone.

#4. The Flight to Quality Persists

Across every commercial real estate asset, quality is considered critical as more tenants consider the experience that a building or space creates.

From the office to retail and multifamily, tenants are on the flight to quality. This was sparked as new concerns emerged from the pandemic when everyone re-entered the built environment after a long pause.

When looking for a place to call home, multifamily tenants will weigh all their options. Multifamily tenants likely have many requirements on their wishlists. They will research to see which local building best meets their needs, wants, and non-negotiables.

To help multifamily assets perform, it’s important to maintain the building and modernize the common areas. Here are a few ideas that can help get a multifamily building prepared to attract tenants in the 2023 market: