In a time when commercial real estate seems to be characterized by uncertainty, the multifamily sector is experiencing a unique phenomenon: a historic supply influx. Even as interest rates remain unpredictable and the shadow of the upcoming election looms, multifamily continues to present itself as a buyer's market, a perspective echoed by Jay Remillard, Co-Head at CP Capital. This wave of new deliveries presents both challenges and opportunities for investors.
Generational Supply Levels: A Challenging Landscape
The past 12 months have seen an unprecedented supply of multifamily units entering the market, described by Remillard as “generationally high.” Such a dramatic influx of inventory has led to a highly competitive environment, where supply is significantly outpacing demand. While interest in renting remains strong, there is simply too much new inventory for the market to absorb quickly.
"Demand in the first half of the year was the second highest level for the first half of a year after 2021, which was a crazy year because of all the pent-up COVID demand," Remillard explained. "It just can't keep up with the supply."
This wave of supply is creating varied conditions across different regions. In markets where inventory remains limited—such as Boston—property owners are still finding success in pushing rents higher. On the other hand, in cities like Phoenix and Denver, where the market is flooded with new units, rent growth has slowed as renters have numerous options to choose from. It’s a clear demonstration that multifamily is not a one-size-fits-all sector; local market dynamics are crucial in shaping the investment landscape.
Uncertain Times and Regional Nuances
While oversupply remains a common challenge, demand is not uniformly distributed across the country. Recent hurricanes, such as Helene and Milton, have significantly impacted Florida and other Southern states, sparking a surge in housing needs in these regions. Tampa Bay, for example, has seen a jump in demand for two- and three-bedroom apartments due to displaced residents seeking temporary housing. Other areas affected by storm damage—like South Carolina and Atlanta—are also experiencing increased demand as renters look for stability.
Moreover, buyers are migrating from states with stricter regulations, such as New York, seeking opportunities in more business-friendly environments. These shifts are fueling demand for properties in regions with fewer regulatory constraints, contributing to a sense of urgency among buyers who are eager to capitalize on discounted prices and a favorable market environment.
A Buyer’s Market Unfolds
Given these factors, the multifamily sector has become a buyer’s market, presenting intriguing opportunities for investors. Remillard is optimistic that those who made acquisitions in the past year stand to see impressive returns, with current conditions potentially creating advantageous entry points. He notes that construction costs are down due to a decrease in new development starts, making it a prime time for those considering new projects.
But while buyers are eager, sellers find themselves in a more challenging position. Many property owners are holding off on listing, waiting for a more favorable economic climate. “I think a lot of people are saying we're waiting until after the election," Remillard noted. "It's never a good time to sell in the winter because that's when rents are the lowest, and concessions for free rent are the highest."
Growing Interest Amid Cautious Optimism
Interestingly, despite the current market hurdles, buyers are out there. CP Capital, in particular, is seeing a noticeable uptick in interest, with as many as 30 property tours and dozens of confidentiality agreements signed for individual deals. Multiple bids per property—up to 20 in some cases—show that interest is growing, even if actual transaction volumes remain modest.
For CP Capital, the strategy is clear: target high-growth areas with a blend of urban and suburban features, known as "surban" neighborhoods. These environments, which offer a mix of walkability and driving convenience, are attracting residents who want the best of both worlds—access to amenities without the density of urban cores. In New York City, for instance, Staten Island serves as a prime example of this kind of market.
Looking Forward: Rent Growth on the Horizon
Despite current challenges, Remillard remains bullish on the multifamily sector's long-term outlook. He projects that significant rent growth is unlikely until 2026, as the current supply glut will take time to be absorbed. The expectation is that by 2026, the market will transition back into a period of undersupply, exerting upward pressure on rents.
"People are looking at 2026 as the US shifting back into a period of significant undersupply, which will probably put upward pressure on rents," he said. This is good news for investors, as the potential for strong rent growth in 2026 and 2027 could result in substantial returns.
Investment Outlook: Seizing the Moment
For now, the focus remains on finding the right opportunities and positioning for future gains. Remillard’s enthusiasm is evident as he discusses CP Capital’s plans to break ground on new projects, encouraged by the current market dynamics. The company's experience, having invested almost $16 billion in national real estate assets and managed over 70,000 residential units, provides a solid foundation for navigating this complex landscape.
In summary, while challenges exist, the multifamily sector’s future appears promising. Investors with patience and strategic vision could find this market’s current conditions ripe for opportunity—capitalizing on discounted deals today for potential rewards tomorrow. Whether it's seizing chances in hurricane-affected regions, targeting surban neighborhoods, or waiting for the right time to push rents, the multifamily market is certainly one to watch closely in the coming years.
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