Slow Job Growth Will Hamper Apartment Demand Next Year

The multifamily market might be headed for a slowdown next year. According to a new economic letter from UCLA Anderson Forecast and UCLA Ziman Center for Real Estate, slowing job growth could hamper apartment demand and stall rental rates in 2020—and investors should start shifting investment strategies to react to the slowing economy.

“Job growth is going to slow down dramatically, and that will slow down demand,” David Shulman, senior economist for the Ziman Center and UCLA Anderson Forecast, tells GlobeSt.com. “The economy and the real estate industry has been used to 200,000 jobs a month gain on average. Even with the 75,000 jobs gain last month, we are still averaging 200,000. That [job growth] drives office demand and it drives apartment demand.”

The deceleration of job growth is more dramatic depending on the research. While the official estimate of job growth is 200,000 jobs added per month, Shulman says that it could currently be half of that. “In another report, we showed a dichotomy between the payroll survey and the household survey,” he says. “The household survey is different. It asks people in their homes if they are working or not working, and that is where the unemployment rate comes from. The household survey has only shown a gain of 100,000 per month over the past year. I think that 100,000 jobs per month is going to be a lot more normal than 200,000 jobs per month, and I think next year, it could be as low as 50,000 jobs per month.”

The combination of slowing economic growth and fewer new jobs added to the economy will be an impactful combination for the apartment market, but Shulman says that few investors are responding to the signs, and the new construction pipeline is growing. “I think that it is going to take a while for investors to adjust, and then there is going to be a rude awakening. That will happen some time next year,” he adds. “The demand will show up in the lease up of new projects. All of the sudden vacancy rates will linger because the underlying fundamentals will be a lot weaker. In terms of GDP, we are predicting 2% growth this year and 1% growth next year. I don’t think that market participants are ready for that kind of a slowdown.”