MULTIFAMILY DEMAND WILL STILL OUTWEIGH SUPPLY IN 2017
This story by Natalie Dolce originally appeared online at GlobeSt.com
January 17, 2017 New York, NY — For the past several years, Capital One has surveyed multifamily industry participants at the RealShare Apartments conference to assess market sentiment for the coming year. Starting last year, the firm began using the survey as a platform for blog posts from our senior bankers, who explain the implications of the findings and also add their own perspectives on the coming year. This year, the firm’s Ben Stacks, SVP and NYC area market manager, discusses one particular question in the survey that perfectly captures the moment for the multifamily market—“What will the balance be between supply and demand in the coming year?” Attendees at the 2015 conference believed that demand would outweigh supply by 15 percentage points in 2016. For 2017, that margin dropped almost in half.
The views expressed in the commentary below are Ben Stacks’ own.
While many industry participants believe that demand is running ahead of supply, the general sense is that the market will tighten somewhat in 2017. Certainly, that’s what we are seeing in New York. In pockets of softness—areas like Williamsburg, Long Island City, and some neighborhoods in Manhattan—landlords have been offering free rent and other concessions to prospective tenants. On the other hand, landlords in other markets across the country—Seattle and Los Angeles come to mind—are having no trouble increasing rents.
Nationwide, Overbuilding Is Not a Long-Term Concern
This sentiment is confirmed by a response to another question we always ask our RealShare survey participants: “What keeps you up at night?” Of the potential choices, overbuilding came in last at just 20%.
There are good reasons for this sentiment. The fundamentals for a vibrant multifamily sector remain in place, unemployment has been steadily dropping, and the stock market has been doing well of late. In addition, a number of regulations—primarily the Basel III requirements—have kept multifamily building in check. This effectively means that banks will continue to be more selective about their construction lending.
In New York, the January expiration of the city’s 421-a housing program is a significant factor. This program provided property tax breaks to developers who set aside units for low- and moderate-income tenants, and its expiration kept development in line with demand in 2016. The legislature is expected to restore the program early this year, but the hiatus has unintentionally helped keep the softness we’ve seen from spreading.
In addition, a 39% increase in survey participants who say that construction loans will be the most important type of financing for their business in 2017 attests to the pent-up demand we are seeing nationwide.
Enthusiasm for Multifamily Remains Unabated
Each year we begin the RealShare survey with a question designed to gauge general market sentiment: “Are you going to be a net buyer or seller in upcoming year?” Fifty-one percent of the respondents declared they would be a net buyer, up from 47% from last year. Despite concerns over a narrowing gap between demand and supply this year, our respondents’ enthusiasm for multifamily remains unabated. Their consensus: 2017 will be another solid year for our business.
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