2024 Insights
The real estate market is constantly evolving, influenced by macroeconomic pressures, shifting work habits, and changing investor sentiment. Each Fall we share our insights on the multifamily, industrial, retail, and office sectors, along with the current trends in capital markets.
Above you’ll find a quick video of Tim Wallen, Principal & CEO, Billy Fox, Senior Vice President and Dan Price, Senior Vice President, sharing their core takeaways. If you’d like, you can download a full explanation of our Market View by asset class and full deck presentation below in this post.
Here’s a breakdown of the key takeaways from the MLG Capital 2024 Market View:
Multifamily Sector: Long term stability amid short term supply wave
The multifamily sector continues to demonstrate resilience, even as broader economic challenges persist. Our analysis underscores the enduring appeal of multifamily investments:
Sustained Demand: Demand for multifamily housing remains strong. Continued population and household formation growth combined with increasing unaffordability of single-family homes, driven by higher mortgage rates and home prices, is pushing more people into renting. Further, many renters are renting for longer as marriage and having children are pushed out to later ages, bolstering the multifamily market.
Short–Term Supply Headwinds, Near– and Long–Term Tailwinds: The broader multifamily market is enduring all-time highs in new deliveries that are expected to peak in 2024, and are well above the near-term average of 350,000 units per year from 2010-2020. However, new multifamily starts have fallen rapidly signaling a significant future reduction in new deliveries. Looking to 2025 and beyond, new apartment deliveries are expected to be below the last decade’s average number of deliveries. This reduction in new starts is driven by higher construction costs due to inflationary pressures, higher interest rates, and the inability for developers to make new construction numbers work with the higher rents needed.
Rent Growth: While rent growth has moderated from the unprecedented levels seen during the years surrounding the COVID pandemic, many, but not all, markets are still seeing positive rent growth today. Real estate fundamentals vary greatly by market and submarket. We’ve encountered various levels of rent growth directly correlated to the amount of new supply in each market. With new supply tailing off significantly in 2025 and beyond, we expect to see sustained positive rent growth in the near future as demand outweighs new supply.
Vacancy Rates: Persistent demand has absorbed supply, in general. Similar to rent growth, we’ve seen differing vacancy rates attributed to the level of supply by market. The excess deliveries in 2023 and 2024, which created some softness and lower occupancy rates, has been primarily concentrated in high population and job growth markets that developers have flocked to. The market continues to hit record absorption rates of these new units but it will take time due to excess supply delivered in a short period of time. We expect occupancies to stabilize in 2025 and beyond closer to long term averages when the short-term supply is absorbed and the supply/demand dynamic shifts due to the reduced forecasted future pipeline for new construction.
Multifamily Investment Outlook:
Renewed Focus to Quality: The market has seen a significant reduction in transactions and equity flows into all real estate sectors including multifamily. Given the lower level of competition on the buy side today, we have had a heightened focus on acquiring quality assets in quality locations. This is a unique window to invest before the market gains more certainty of interest rates and the expected future interest rate reductions which may provide the signal for many institutional investors to re-enter the market place.
Higher cap rates, depressed NOI, deeper discount to replacement cost: Given the current market conditions, we find a unique market environment where assets can be acquired at higher cap rates, at depressed NOI (net operating incomes), and at deeper discounts to replacement cost. The culmination of these factors create an opportunistic time to invest capital.
MLG Market View Presentation
MLG Market View Materials Download
Industrial Sector: A Bright Spot Amid Challenges
The industrial sector continues to perform well, driven by strong demand for logistics and warehouse space.
E-commerce Growth: The ongoing growth of e-commerce has been a significant driver of demand for industrial space. Retailers and third-party logistics providers are seeking more warehouse and distribution space to meet the demands of online shoppers. This trend has been accelerated by the pandemic, which has permanently shifted consumer behavior towards online shopping.
Supply Chain Reshoring: Many companies are rethinking their supply chain strategies in response to global disruptions. There is a growing trend of reshoring manufacturing and increasing domestic inventory levels, both of which require additional industrial space. This has further boosted demand in the industrial sector.
Low Vacancy Rates but Be Careful: The strong demand for industrial space has led to low vacancy rates across most markets, however, there has been a substantial delivery of product. Be careful of oversaturated markets due to supply creation due to inexpensive capital in recent years.
Industrial Investment Outlook:
Strategic Location Investments: Understanding the importance of location in industrial investments is a requirement. Properties located near major transportation hubs, such as ports, airports, and interstate highways, are particularly desirable. These locations are critical for efficient distribution and supply chain operations, making them valuable assets in the industrial market.
Very Investable: but, hard to find deals at attractive basis relative to replacement cost.
- Replacement cost story intact on flex opportunities, while harder to find on bulk distribution.
- Demand drivers of E Commerce, jobs coming back to the US from foreign markets due to supply chain issues, and productivity gains keep fundamentals strong for the long term.
- Supply creation is relatively easy, imperative to watch for risk of available land and new projects.
- Specific markets may be oversaturated due to inexpensive capital in recent years.
Find Existing: multi-tenant industrial with rents materially below new construction rents, or mature sub-market with low risk of supply creation
- Limited supply creation in flex industrial product over last 20 years
- Buildings with vacancies in healthy or temporarily disrupted sub-markets
Capital Markets: A Time for Strategic Buying
The current capital market environment presents both challenges and opportunities for real estate investors. It’s important to highlight the importance of strategic buying in this landscape:
Equity Availability: Despite recent market volatility, there remains a substantial amount of equity available for real estate investment. Private real estate funds are sitting on significant dry powder, although institutional investors have become more selective in their allocations. This has created an environment where there is still ample capital available, but it is being deployed more cautiously.
Healthy Debt Market: The lending environment remains favorable, particularly for multifamily and industrial investments. Traditional lenders, such as Fannie Mae, Freddie Mac, national/regional and local banks and insurance companies, continue to provide debt, although they are demanding more substantial down payments and stricter underwriting standards. This does not change our historic targets of 60-65% loan to cost. This disciplined banking approach is helping to maintain stability in the market and prevent the kind of over-leverage that led to problems in past cycles.
Credit Spreads and Interest Rates: The rapid increase in interest rates over the past 18 months has kept credit spreads wider than usual. However, as interest rates stabilize, these spreads are expected to narrow, which could create more favorable conditions for borrowers. The disciplined underwriting by lenders is ultimately beneficial for the market, as it reduces competition and helps to keep asset prices in check.
Buy Amid Fear: The famous investment advice of Warren Buffett—“Be fearful when others are greedy, and be greedy when others are fearful” suits the current environment. Many investors may be sitting on the sidelines due to uncertainty, this may be an opportune time to acquire assets at attractive prices. It is important to focus on assets with strong fundamentals that can weather short-term volatility and deliver long-term value.
Exciting times are ahead for those who are prepared to invest wisely in the ever-evolving real estate market. To speak with a team member, please visit: mlgcapital.com/get-started-form/
MLG Market View Presentation
MLG Market View Materials Download
Blog:
This (“Blog”) is presented by MLG Marketing, LLC (“MLG”) and is provided for information purposes only and is not an offer to sell an investment in a security. This Blog is not intended to be relied upon as a basis for an investment decision, and is not, and should not be assumed to be complete. Recipients of this Blog shall make their own investigations and evaluations into any investment offerings and review the appropriate disclosure documents for such investment prior to making an investment decision. The information contained in this Blog may be preliminary in nature. MLG does not make any representation or warranty as to the accuracy or completeness of any information presented herein. Any opinions, case studies or conclusions expressed herein, are based upon certain assumptions. Other events, which were not considered, may occur and may significantly differ from the assumptions made herein. Any assumptions should not be construed to be indicative of the actual events that will occur. Actual events are difficult to predict and may depend upon factors that are beyond MLG’s knowledge and control. The recipients of this Blog agree that MLG, its affiliates and their respective partners, members, employees, officers, directors, agents and representatives shall have no liability for any inaccuracy, misstatement, omission of fact or for any opinion or conclusion expressed herein. The contents of this Blog are not to be considered as legal, business or tax advice, and each recipient should consult their own attorney, business advisor and tax advisor as to legal, business and tax advice. By reviewing this Blog, each recipient of this Blog agrees that it will (i) not copy, reproduce, or distribute this Blog, in whole or in part, to any party, and (ii) keep confidential all non-public information contained herein.
Past performance and results are not indicative of future results.
Video:
This (“Video”) is presented by MLG Marketing, LLC (“MLG”) and is provided for information purposes only and is not an offer to sell an investment in a security. This Video is not intended to be relied upon as a basis for an investment decision, and is not, and should not be assumed to be complete. Recipients of this Video shall make their own investigations and evaluations into any investment offerings and review the appropriate disclosure documents for such investment prior to making an investment decision. The information contained in this Video may be preliminary in nature. MLG does not make any representation or warranty as to the accuracy or completeness of any information presented herein. Any opinions, case studies or conclusions expressed herein, are based upon certain assumptions. Other events, which were not considered, may occur and may significantly differ from the assumptions made herein. Any assumptions should not be construed to be indicative of the actual events that will occur. Actual events are difficult to predict and may depend upon factors that are beyond MLG’s knowledge and control. The recipients of this Video agree that MLG, its affiliates and their respective partners, members, employees, officers, directors, agents and representatives shall have no liability for any inaccuracy, misstatement, omission of fact or for any opinion or conclusion expressed herein. The contents of this Video are not to be considered as legal, business or tax advice, and each recipient should consult their own attorney, business advisor and tax advisor as to legal, business and tax advice. By reviewing this Video, each recipient of this Video agrees that it will (i) not copy, reproduce, or distribute this Video, in whole or in part, to any party, and (ii) keep confidential all non-public information contained herein.
Past performance and results are not indicative of future results.
