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CONTRIBUTORS

Tim Wang, Ph.D.

Head of Research,
Clarion Partners

Preview

Over the past decade, US multifamily has been among the most sought-after sectors by institutional investors due to its necessity characteristic, the underlying strength of property-level fundamentals, and high historic risk-adjusted total returns. It has remained an integral part of commercial real estate (CRE) investment portfolios with a portfolio weighting of 29.2% in the NCREIF Fund Index-Open End Diversified Core Equity (NFI-ODCE).1

We are optimistic about the outlook for US multifamily in 2023 and beyond primarily due to two macroeconomic factors:

  • The National Housing Shortage. Following a decade of underbuilding, there continues to be a national housing shortage.2 Both the US for-sale housing inventory and the rental housing vacancy rate have remained near a two-decade low in recent years.
  • Favorable Demographics: Robust Renter Base in All Generations. The increasingly onerous cost of owning a home has led to many in all age groups to remain in the renter cohort, sometimes by choice. While the overall US homeownership rate is now near its long-term average, the rate amongst first time buyers is at an historical low.3

In this paper, we look at the following factors that affect US multifamily, which is among the most sought-after sectors by institutional investors:

  • Macro drivers sustaining rental housing demand.
  • Financial headwinds: Acute for-sale housing affordability challenge persists.
  • Ongoing shift: Sun belt lure & suburban boom.
  • Multifamily investment performance strong, especially in certain segments.
  • Investment focus.

We believe that well-located, high-quality rental housing will continue to be a strong performer over the long term due to a variety of macro, demographic, and financial factors.

Endnotes

  1. NCREIF Property Index. Q1 2023. Note: The NFI-ODCE is a capitalization-weighted, gross of fee, time-weighted low leverage return index with an inception date of December 31, 1977.
  2. As of 1H 2023, there was a wide range of housing shortfall estimates based on varying methodologies from various sources: Rosen Consulting Group for the National Association of REALTORS®, Harvard’s Joint Center Housing Studies, Realtor.com, and National Low Income Housing Coalition.
  3. NAR, US Census Bureau. July 2023.

 

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