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Multifamily Demand Remains Strong Despite Apartment Development Slowdown. 

While the narrative might suggest an overabundance of multifamily housing, recent data paints a different picture in certain markets. A Star Tribune article that highlights a significant decrease in apartment permits issued, with only 115 permits granted compared to last year — a 55% drop. This contrasts with the rising demand for rentals driven by affordability challenges. What should investors take away from this? There is a high demand for multifamily apartments. Some metro areas already face a housing shortage. Coupled with single-family home affordability decreasing because of rising mortgage interest rates, the demand for multifamily housing should only go up from here. At a time when more multifamily units are needed due to rising mortgage costs and renters staying put, the decline in apartment construction in 2023 will most certainly create an opportunity for investors.

Moreover, despite a near-record number of apartments built last year, the limited supply from new deliveries coming on-line in 2024–25 is expected to cause rental rates to surge across the metro areas.  Apartment deliveries are forecasted to fall by more than two-thirds next year, according to Maxfield Research. That puts upward pressure on rents in much of the metros and on average, rents have already increased 4.4% since last year. Despite a record number of units coming online in 2023, the overall vacancy rate of 5.3% has remained unchanged from the previous year.

What should investors take away from this? The time to invest is now! With a limited supply of new apartments coming and strong absorption of existing units, rents are expected to continue rising, leading to positive investor returns.  With supply constraints expected in the near future, we foresee strong occupancy rates and rental prices continuing an upward trend. The persistent demand for multifamily properties shows no signs of waning leading to continued stability and growth in the multifamily sector. This ongoing demand offers an enticing opportunity for investors seeking promising returns.

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“S&P 500 Historical Annual Returns.” MacroTrends. Accessed May 5, 2023. https://www.macrotrends.net/2526/sp-500-historical-annual-returns. 

Thompson, Michael. “Bloomberg US Aggregate Bonds Annual Returns.” 

UpMyInterest. Accessed May 5, 2023.

 https://www.upmyinterest.com/bloomberg-us-aggregate-bonds/.
“U.S. NCREIF Property Index Returns 2022.” Statista, February 23, 2023.