Multifamily Properties Still Set To Outperform
Multifamily Properties Still Set To Outperform: Even with explosive apartment rent growth in the rearview mirror, the outlook for the sector is likely to outperform other major property types, according to analysis by credit-rating firm DBRS Morningstar.
Multifamily real estate, long a favored investment, proved even more so after the onset of the coronavirus pandemic in 2020. Investors flooded the market, driving record transaction volumes and impressive value gains. The frenzy ended up being short-lived, though, and contributed to the broader economy’s overheating and excessive inflation, according to DBRS.
To combat runaway inflation, the Federal Reserve stepped in with an aggressive rate hiking program, which immediately reduced multifamily yields and raised capitalization rates, resulting in lower values.
Coinciding with the rate-hike schedule, multifamily market fundamentals started showing cracks as evidenced by cooling rent growth, higher vacancy, new supply, larger concession packages and elevated bad debt as reflected in increasing commercial mortgage-backed securities loan delinquencies, DBRS said. The firm projected the multifamily delinquency rate, which has risen 50 basis points since June 2022, will continue to increase from the relatively low delinquency rate of 1.45% as of July.
However, while still elevated from the years leading up to the pandemic, the delinquency rate remains lower than the high of 3.37% during the peak of the pandemic, according to DBRS. In addition, multifamily properties have the second-lowest delinquency rate behind industrial properties.
August 24, 2023
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