CALABASAS, CA—Elevated levels of new apartment supply notwithstanding, Marcus & Millichap is projecting a 5% increase in annual effective rents this year. The Thought Leader credits further gains in US payrolls with driving the sector’s fundamentals.

“A combination of low unemployment rates, accelerating wage growth and tepid inflation will position consumers to lead the economy in 2016,” according to MMI’s 2016 US Multifamily Investment Forecast, prepared by senior EVP Hessam Nadji and first VP, research services John Chang. “Total job openings remain near record levels and competition for workers will pressure wage growth as intensified hiring expands beyond the core to support gains across a wide range of metros”—and a wide range of employment sectors, as well. This in turn will boost household formation this year, especially in multifamily, according to MMI.

Along with that increase in household formation comes the third consecutive year-over-year increase in construction. MMI’s report says developers will complete 285,000 units in 2016, surpassing 2015′s tally of 250,000 rentals. “Multifamily starts remained elevated nationwide, pointing to additional supply pressures over the near term. Several metros will record supply-induced vacancy increases this year,” according to the report, while the vacancy rate nationally will tick upward.

All in all, MMI says, “the apartment outlook for the coming year remains strong,” despite the “numerous hurdles” investors are likely to face. Among those hurdles, “risks of rising inflation could push the Federal Reserve to tighten monetary policy as it cautiously balances generally positive performance indicators against mostly internationally spawned headwinds. The restraints of a slowing global economy could impair US economic momentum, softening job creation.” Even so, according to the firm’s multifamily report “most economic indicators still point toward growth, and the apartment sector will be buoyed by more rental-favoring Millennials coming of age and empty nesters motivated by lifestyle changes.”

In addition to delving into greater detail on the capital markets outlook and the bigger picture on investment, the report also analyzes the results of MMI’s National Multifamily Index and presents detailed forecasts for 45-plus apartment markets. To review the latest US Multifamily Investment Report, click here. For all coverage of Marcus & Millichap on, including columns and insights from Hessam Nadji, click here.