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InvestmentsMortgageReal Estate

Multifamily real estate just had its best year since 2000

Net absorption rose to highest level this century

By just about any way you look at it, 2018 was the best year for multifamily real estate this century: Renters paid more for housing than they ever have before, Freddie Mac and Fannie Mae both had banner years, commercial and multifamily debt hit an all-time high, all while delinquencies remained at historic lows.

And now, we have clear evidence that last year was the market’s best year since 2000.

A new report from CBRE shows that last year, net absorption hit the highest level since 2000. According to CBRE’s report, net absorption was 286,600 units in 2018, topping 2017’s total by approximately 10,000 units, and marking the highest total this century.

The only years that come close are 2017, when absorption hit 277,000 units; 2014, when absorption was 255,000 units; and 2010, when absorption was 263,000 units.

Construction activity was also high last year, with 267,900 units completed in 2018. That was slightly lower than the previous year when completions came in at approximately 274,000. But, 2017 was a record year itself, with the highest number of completions since the 1980s. Therefore, 2018 had the second most completions since the 80s.

Additionally, absorptions were higher than completions for the second year in a row.

Beyond that, multifamily acquisitions totaled $173 billion in 2018, the highest level in 19 years and up 12.1% from 2017, CBRE’s report stated.

According to the report, multifamily investment totaled $50.9 billion in the fourth quarter, the highest in any quarter since the fourth quarter of 2015.

As CBRE notes, the significant increases in multifamily investment in both the fourth quarter and the year as a whole show that the “strong appetite for multifamily assets by investors of all types outweighed concerns over rising interest rates, possible late-cycle exposure and relatively low returns.”

Additionally, the report shows that the overall vacancy rate was 4.5% in the fourth quarter, down 20 basis points from the same time in 2017. The 2018 fourth quarter vacancy rate was also the lowest in any fourth quarter since 2000.

CBRE adds that the environment leading to the strong investments of 2018 will likely continue in 2019, but CBRE cautions that total investment is likely to decline slightly this year.

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