Orlando, Las Vegas Top Marcus & Millichap's 2022 Apartment Forecast

Orlando and Las Vegas landed as the top apartment markets for 2022, according to Marcus & Millichap’s 2022 Multifamily National Investment Forecast released this week.

Nation-leading rates of job creation and household formation placed Orlando and Las Vegas at the top of the U.S. National Multifamily Index. Robust in-migration also positions other major Southwest and Florida metros near the top of the rankings.

The report said that areas with the greatest ground to make up after the impact of the pandemic include primary gateway markets such as Seattle-Tacoma (#22), San Francisco (#25), and San Jose (#26) toward the middle of the Index. Uncertainty over the return-to-office process places New York (#34) slightly lower. 

As for the national economy, the savings accumulated during the pandemic is supporting record retail spending and robust housing demand, buttressing the overall economy. The main impediment this year is high inflation, driven in no small part by supply chain disruptions that will persist throughout 2022.

Apartment Fundamentals Expected to Improve

After a banner period for multifamily properties in 2021, fundamentals are projected to improve even further this year, albeit at a more typical pace, according to Marcus & Millichap. 

Housing demand will continue to grow, surpassing a record 400,000 units of construction to keep availability low across quality tiers. Difficulties obtaining some raw materials and labor do, however, increase the chance that some projects could be delayed until 2023.

“The health crisis accelerated household migration from dense urban cores to more suburban settings,” according to the report. “The aging of the population will continue to support suburban relocations, although central business districts will also see new renter demand, fueled by reopened lifestyle amenities.”

Capital is Readily Available for Multifamily Investment

Marcus & Millichap said that the Federal Reserve will balance controlling inflation with sustaining economic growth. The Fed has already begun unwinding its $120 billion per month asset purchase program, which should conclude before mid-2022. More than one rate hike is anticipated for this year as well, according to the report.

Capital is readily available for multifamily investment this year following a record period for originations in 2021. Most lenders have returned in force after the initial phase of the pandemic, when Freddie Mac and Fannie Mae played a critical stabilizing role. Financiers are expecting an active year ahead, as indicated by the expanded purchase caps of both of these government-sponsored agencies.

But, “inflation worries highlight the strong potential of multifamily properties as a favorable option in such a climate,” according to the report. “Appreciating property values and the ability to adjust rents contribute to the positive outlook and are likely to draw new buyer demand this year.”

BTR-SFR’s Growth for 2022

Speaking from NMHC’s 2022 Apartment Strategies Conference this week in Orlando, Marcus & Millichap’s Senior Vice President and National Director of its Multihousing Group, John Sebree, said growth in the built-to-rent, single-family rental (BTR-SFR) industry will factor into 2022.

“All the percentages you see about growth in built-to-rent, single-family rentals look huge because they are basically starting from zero in the data,” Sebree said. “It will continue to grow in the Sunbelt areas but won’t have a significant impact on multifamily markets because rental housing is so underdeveloped to meet demand to begin with.”

He said the “math” behind BTR-SFR “looks really good, but some developers are having a tougher time executing on it because of rising materials costs, difficulty in getting plans/zoning approved by local governments. But it will get itself worked out in the next two years or so.”

Greg Willett, hired last week as Vice President of Marcus & Millichap’s Institutional Property Advisors (IPA) multifamily research, said the BTR-SFR occupant demographic differs from the typical apartment renter. And that demographic “is still getting itself determined; right now, there’s just not enough data about these renters to paint a full picture.”