Continued Growth in Midwest Multifamily Market Expected in 2019
By Jay Madary, President and CEO of JVM Realty Corp.
That might not be the most exciting phrase, but it captures the appeal of the Midwest’s secondary and tertiary markets to multifamily investors.
Cities like Indianapolis and Kansas City produce strong, consistent operating fundamentals that lead to reliable increases in rental rates. Add in investment sales prices that often are considerably lower than what you’ll find in gateway cities, and investors see that Midwest markets can generate attractive and dependable returns.
Looking ahead to the rest of 2019, it would appear that another 12 months of solid performance is in store for the Midwest. Below are some of the factors that will contribute to strong resident and investor demand in the region in the new year.
- Rising interest rates. In December, for the fourth time in 2018, the Federal Reserve raised its benchmark interest rate. Many experts anticipate more increases this year.
It’s important to keep in mind that rates are still near historic lows. Additionally, based on my experience, the recent increases haven’t slowed down investment sales or harmed pricing.
Furthermore, rising interest rates stand to benefit the industry to a certain degree because they will make purchasing a home more expensive. In turn, that should serve to keep resident demand for apartments strong.
- Stock market ups and downs. While no one enjoys seeing equities struggle, the heartburn that investors suffered last year and are likely to continue to experience in the early part of 2019 should compel many of them to seek alternative investments. In times of market volatility, returns with minimal correlation, such as those produced by multifamily investments, suddenly hold an even greater appeal.
- A booming job market. Job growth and rising wages are the foundation of resident demand for apartments, and we are living in an era of historically low unemployment rates, both in the Midwest and throughout the country.
The U.S. unemployment rate was 3.9 percent in December. About 312,000 jobs were added during the month, and wages rose 3.2 percent on an annual basis.
With hiring poised to remain strong for at least the early part of 2019, occupancy rates should remain healthy.
- A possible slowdown in new construction. The apartment industry has seen a wave of new communities come online in recent years. By and large, these new developments have been well absorbed.
Looking ahead to the new year, there are some factors in place that may slow the pace of new development: rising interest rates and the growing costs of construction materials and labor. While I remain confident that resident demand is strong enough to support sensible levels of new construction, a slowdown would likely boost occupancy levels and therefore rent growth.
When you own and operate apartments in the Midwest, you’re not in for a lot of drama. Thankfully. In part because of the factors outlined above, 2019 should be another steady 12 months for apartment portfolios in the region.
Jay Madary serves as president and CEO of JVM Realty Corp.