From the Wall Street Journal this week:

“While office towers have typically shaped the American city skyline, builders are now pushing apartments higher into the clouds. High-rises were just 2% of new apartment supply during the 1990s, but rose to 14% in 2022.

The bigger approach to multifamily development reflects the evolving economics of the business and the dynamics of the current housing market. 

Rising construction and other costs mean that developers often need to build more units to be profitable. For years, they have been designing smaller apartment units, allowing them to fit more into each building. The average square footage of a new apartment unit fell 6% from 2013 to 2022.

Lack of available land is also causing taller buildings to sprout. Some cities are tweaking zoning and other building codes to make larger-scale construction more feasible.”

Source: Jay Parsons & The Wall Street Journal

Publicly traded REITs can be priced above or below their Net Asset Value (NAV), which is an estimate of what the real estate they own is worth right now.

A discount exists because REITs (which are essentially traded like stocks) look forward to where they think prices are going in the future. If the market is bearish on the sector and believes the underlying values will fall from where they are today, then REITs will “price in” the decline and trade at a discount to their NAV.

The opposite is true when the market is bullish on the sector; REITs will “price in” a positive NAV.

Here is a snapshot of where the multifamily sector is today compared to other REIT categories:

This is not unusual. This following graph shows the historical U.S. REIT premium/discount to NAV going back to 2000:

Source: Multihousing News & Trepp

It’s important to note that CMBS loans make up only about 3% of the total $2 trillion in multifamily debt, but we’re offered significantly more transparency to what is happening within this piece of the pie:

Source: Trepp

Source:	Month:	Monthly Change:	Annual Change:	Vacancy:
Apartment List	January	-0.30%	-1.00%	6.50%
CoStar	January	0.22%	0.66%	7.60%
Apartments Advisor	January	0.50%	-2.03%	N/A
Apartments.com	January	0.70%	0.20%	N/A
RealPage	January	N/A	0.30%	5.90%
Redfin	January	0.00%	1.10%	N/A
Zillow	January	N/A	4.70%	N/A
Yardi Matrix	January	0.00%	0.50%	N/A
Rent.com	January	-0.04%	1.10%	N/A
Realtor.com	January	-0.06%	-0.30%	N/A
	Average:	0.13%	0.52%	6.67%

On a previous post I discussed how Raleigh, NC is ranked number 1 on multiple lists as the top market to invest in 2024 using many different metrics.

Raleigh’s demand reached an all-time high in the fourth quarter, absorbing 2,886 units. That was more than triple the market’s Q4 average over the last 10 years.

The demand will need to stay strong in order to help offset the supply entering the market this year:

Source: Real Page

The data below uses a three-month weighted moving average and color codes by region (West, South, Midwest and Northeast):

Source: YieldPro & The U.S. Census Bureau

There are 12 markets where Class C rents fell at least 6% over the last year. The new supply of class A units are pulling renters away from class B properties…..and on down the chain.

Class C rent growth topped 5% in 18 of the nation’s 150 largest metro areas. All of these markets are regions with little new supply.

Excess supply helped slow rent increases in previous cycles:

Source: Jay Parsons & The Joint Center For Housing Studies

While cap rates have reached 5.7% across the West Cost, East Coast and Sun Belt:

January data continues to show record high preleasing for the 2024 school year:

Snapshot at the top 32 Power 5 schools with enrollment over 25,000 and the most dedicated off-campus student housing beds:

Yardi Matrix anticipates delivery of more than 46,000 new student housing beds in 2024, an increase from the 35,610 beds delivered last year, but expects supply will fall over the next five years to below the long-term average of 36,322 beds per year dating back to 2010.

Student housing investment activity was down last year, with only 76 student housing properties changing hands, compared to an average of 205 in 2021 and 2022. This resulted in a lower price per bed of $75,410 last year, compared with more than $80,000 per bed during the previous five years.

Source: Yield PRO & Yardi Matrix

The U.S. News & World Report list is based on the median gross rent and annual household costs for mortgage-paying homeowners of each metro area.

Spartanburg, SC (11) Greenville, SC (12) and Winston-Salem, NC (16) also made the top 25:

1. Hickory, NC
2. Youngstown, OH
3. Huntington, WV & Ashland, KY
4. Huntsville, AL
5. Fort Wayne, IN
6. Beaumont, TX
7. Peoria, IL
8. Green Bay, WI
9. Quad Cities, IA
10. Knoxville, TN
11. Spartanburg, SC
12. Greenville, SC
13. Fayetteville, AR
14. South Bend, IN
15. Brownsville, TX
16. Winston-Salem, NC
17. Chattanooga, TN
18. Lafayette, LA
19. Springfield, MO
20. Tulsa, OK
21. Toledo, OH
22. Dayton, OH
23. Little Rock, AR
24. Pittsburg, PA
25. Montgomery, AL

Source: U.S. News & World Report