Significant Multifamily Supply Entering U.S. Market in 2016, Pace Not Seen Since 1980s

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According to Freddie Mac's latest Multifamily Outlook Report released this week, steady economic growth and key drivers will keep the U.S. multifamily market moving forward in 2016.

"We started 2016 with good momentum on the heels of a strong year," said Steve Guggenmos, Freddie Mac Multifamily vice president of research and modeling. "This year more multifamily supply will enter the market at a pace not seen since the 1980s. We expect the multifamily sector to continue to grow at a robust level, with the national vacancy rate staying below the historical average throughout 2016, and ending the year under 5 percent. As a result, rent growth will remain strong as new supply continues to be met with significant demand."
 
Freddie Mac 2016 Multifamily Outlook Highlights

• New supply of multifamily units will continue to enter the market while plans for additional construction will continue to increase.

• Multifamily performance at the national level will remain robust into 2016, but some individual markets are starting to moderate.

• Favorable demographic trends, strength in the job market and reduced affordability of owning a home will continue to fuel strong demand for multifamily rental units.

• As more supply enters the markets, the national vacancy rate will increase slightly, but remain less than the historical average through 2016.

• Rent growth will remain strong and above the historical average until new supply can catch up with demand.

• Annual industry originations will grow to $250-260 billion due to increasing property prices, new completions and maturities, along with favorable investment opportunities.

• Cap rate spreads will tighten to 300-330 basis points.