Condominiums on Horizon for Multifamily Housing Industry This Year - 2/9/2004 - Multifamily Landlord Tenant Commercial Buildings

Condominiums the Brightest Spot on the Horizon for Multifamily Housing Industry This Year

The brightest spot on the multifamily horizon at this moment is the condominium market. According to Seiders, condos now represent 25% of all multifamily units being produced.

“We expect that 25% to increase to 30% in 2004,” he said, adding that many developments originally planned as luxury rentals are being turned into condominiums before they are completed. This increased popularity of condominiums is expected to continue in the coming year, said Seiders, driving construction starts of for-sale multifamily units to highs not seen for more than 10 years.

Multifamily rentals are having a rougher time now, but both speakers said that there is good news coming. “Our forecast for economic growth in ’04 is good,” said Seiders, citing “a healthy economic expansion that will generate real job growth.” And, he added, “This is important for producers of rental housing, since negative job growth [jobs being cut or going offshore] and high vacancy rates are strongly related.”

The forecasts from Seiders and Witten both point to continued growth in jobs being created through 2004, which will help push the unemployment rate down.

Source: Witten Advisors, Historical data from U.S. Bureau of Labor Statistics; forecast from Economy.com and National Association for Business Economics

Presenting some cause for concern, multifamily starts for buildings with five or more units have continued steadily at about 300,000 units annually, even in the face of near-record vacancy rates. And, as renters who’d rather be owners left their rental units and bought homes at record-low mortgage rates last year, the market has not been absorbing all the vacant units — both newly-vacant apartments and the new rental units being built.

That situation, says Witten, has been improving, but the supply of apartments continues to outpace demand, as investors continue to fund new multifamily development.

Witten sees a return to balance between supply and demand by the end of this year.

He identified Houston, Atlanta, Dallas, Los Angeles and Washington, D.C. as the cities he expects to have the largest number of rental apartments started in the coming year. But he sees Jacksonville, FL, Los Angeles and Miami as the most favorable cities for rental development.