Multifamily real estate managed to deliver a strong performance in 2023. The year especially demonstrated the economic resilience of multifamily real estate during inflationary periods and furthered established its position as a preferred post-pandemic asset. As Kanat Sultanbekov mentions, multifamily housing is a buoyant sector that typically thrives in strong economic times and hardens to inflationary pressures. While investing in multifamily real estate in 2024 can be a good idea for many, it is vital to explore certain expected trends prior to doing so.
Kanat Sultanbekov underlines a few multifamily development trends to prepare for in 2024
The multifamily housing market has experienced tremendous growth in terms of new constructions, prospects and rental rates over the last decade or so. This market, however, is constantly fluctuating and evolving. Hence, it is vital for real estate investors to stay on their toes when it comes to future trends.
Here are a few multifamily development trends to prepare for in 2024:
- Housing shortages keep multifamily risk low: Multifamily real estate is likely to stay remain a low-risk asset class as housing shortages continue to drive demand over the next couple of years in the United States. Houses shortages have led to an increase in mortgage rates and a drop in annual home sales. Single family homes are expected to experience a continued decline, as an increasing number of homeowners are opting not to sell due to high-interest rates. This would ultimately create more opportunities in the multifamily sector. Even with the uncertain market conditions, multifamily developments are likely to remain a fairly low-risk asset class as its demand remains high. It is also likely to be a better investment than office or retail projects.
- High demand for small and luxury apartments: Even with the rising housing prices and mortgage rates, the demand for luxury apartments has remained steady over the past few years. These properties are quite likely to remain resilient in 2024. High barriers to homeownership are supporting demand for luxury housing among specific demographics, like millennial renters. The demand for smaller and more budget friendly residential units has also persisted over the last couple of years. Due to this reason, the average size of a multifamily unit is shrinking. Moreover, with the costs involved in building multifamily development go up, an increasing number of developers are planning projects with smaller units, particularly in metropolitan areas that have limited space for construction. High rental rates make such compact, budget friendly units more attractive to prospective tenants. As a result, the construction and demand for small units can be expected to grow in 2024.
- Market dislocation can complicate multifamily development: Even with the positive market fundamentals of strong rents and demand, capital market uncertainties do create some challenges in the multifamily development market. The increase in capital expenses creates more pricing uncertainties in the market, and makes it more difficult for developers to complete transactions.
As per Kanat Sultanbekov, it is vital for investors to be aware of the top multifamily development trends for 2024, in order to create strategies that help them to remain agile and respond to the market shifts.