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Industry Economists Make 2017 Predictions

The continuation of current trends, particularly in regard to low cap rates; and decline in demand for $3,500 urban, one-bedroom apartments are among the 2017 predictions made by commercial real estate economists in November, pre-election.

Christopher Thornberg, Beacon Economics, tells REIT magazine he is expecting more of the same, “The fact that cap rates are still low; there’s tons of demand. You have new stuff coming online in some of these hot markets, and guess what? It’s coming online when there’s demand.”

Kim Betancourt, Fannie Mae, adds, “Looking long term, what about the next wave of future renters? The post-millennials–-or ‘Generation Z’–-are getting ready to form their own households over the coming decade, but it is not clear what their housing needs will be. Most likely, they won’t be very different from today’s millennials, at least when it comes to multifamily demand.”

David Shulman, UCLA Anderson, says Millennials are clustering more in urban centers, “but we are beginning to notice that the market for, say, $3,500 a month, one-bedroom apartments is kind of thin. The development pro formas for upscale apartments scheduled for delivery in 2017 and 2018 are going to be hard to meet.”

Betancourt says multifamily will continue to be a favored asset class for commercial real estate investors.

“A combination of low interest rates, a healthy spread between cap rates and U.S. Treasury rates, continued job growth, and demand for multifamily rentals from Millennials, coupled with low homeownership rates, present a positive scenario for multifamily fundamentals over the next 12 months,” she says.