As we’re now squarely in 2024, we often get asked about our forecast for the year. While we’re not economists, we can’t help but compare the sentiment right now to where things were this time last year, and a few themes are emerging:
- Cautious Optimism: While acknowledging that there are likely still challenges ahead, there is a noticeable sense of returning optimism within the industry. Although 2024 may not be a groundbreaking year, there's a collective sentiment that the market isn't deteriorating further. Improved clarity on interest rates, pricing, and supply/demand dynamics are contributing factors.
- Persistent Demand: Fundamental demand for multifamily properties remains strong and is expected to continue throughout the year. Consumer confidence, a resilient job market, and wage growth outpacing rents are continuing to bolster demand. Combined with a shortage of supply in most markets, multifamily demand is expected to remain strong.
- Occupancy Focus: Maintaining high occupancy rates remains a top priority for multifamily operators. Strategies including not increasing rents and offering incentives in order to maintain occupancy levels, particularly in higher-supply areas, are prevalent strategies.
- Construction Slowdown: Construction starts for new multifamily projects are declining, indicating a potential decrease in supply by late 2025 and beyond. While construction loans are still accessible, lower loan-to-cost ratios are requiring higher equity contributions. There’s an apparent shift from ground-up development to addressing potential lease-up distress.
- Stabilizing Values: There are indications that multifamily property values may be stabilizing, with cap rates potentially settling in at their current rates. Despite buyers targeting higher cap rate deals, sellers are reluctant to part with well-located, institutional-grade assets at lower prices.
In summary, the multifamily market in 2024 is undergoing a period of adjustment marked by cautious optimism. Operators must navigate a competitive landscape, prioritize occupancy, and adapt to evolving market dynamics to succeed in the year ahead.
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