5 Unexpected Markets Leading in Multifamily Sales Growth

Recently, we published our National Multifamily Investment Sales Report which provided an overview of the market’s general performance over the past nine years. While 2019 has been an incendiary year for the asset class as a whole, our data indicates capital is especially flowing in secondary and tertiary markets where demand is burgeoning and yields are expanding. Unsurprisingly, investors and developers are looking past saturated primary markets to non-traditional regions where economic shifts are making opportunity abundant.

In fact, Reonomy data shows the top five Metropolitan Statistical Areas (MSAs) for growth in transaction volume are Indianapolis, Syracuse, Cincinnati, Phoenix and Houston—all non-traditional/secondary markets with strong, or developing, economic fundamentals.

Why is attention turning to these markets? Below, we dive deep into each MSA to explore where commercial real estate professions are deploying capital and the impact their efforts are having on each region.

Indianapolis MSA

Indianapolis tops the list of our fastest growing markets. The MSA, which includes Carmel and Anderson, has grown significantly over the past nine years, both in population density and development. Indianapolis was even an HQ2 contender, likely for its Midwestern hospitality, affordability and access to the rest of the country as America’s heartland.

While our data indicates net new multifamily development has slowed, sales activity has steadily increased since 2010, likely a result of the region’s flourishing job market. According to Fannie Mae, Indianapolis’ job market expanded by 1.9 percent at the end of last year, landing slightly higher than the national rate of 1.8 percent. Investment is particularly prominent downtown, most likely to accommodate the 22,900+ jobs that have been added over the past 12 months.

Given the city’s various tax incentives available to businesses, including the Headquarters Relocation Tax Credit and Data Center Tax Exemption, it’s no wonder companies and young professionals are flocking to Circle City. It’s also no surprise that the CRE community is jumping at the chance to invest in Indianapolis’ multifamily market and capitalize on the city’s population surge. And, given the region’s competitive market rates (just under $1M in 2018), Indianapolis will likely continue to attract capital throughout 2020.

Houston MSA

Finally, Houston rounds off our list of the top five fastest growing multifamily markets. The Houston MSA, which encompasses The Woodlands and Sugar Land, is home to the third most populous single county in the country: Harris County. It’s also a hub for employment, with approximately 80,000 jobs added on a year-over-year basis. The labor market is especially strong across the health and life science industry, which reportedly drives $48B annually. Combined, this makes Space City a focal point on the CRE community’s radar, particularly for multifamily opportunity.

Although Hurricane Harvey caused the city setbacks in 2017, the market has certainly rebounded; In July, the Houston Chronicle reported that vacancy rates, especially in Class C housing, have hit a historic 20-year low. CBRE also reported that “year-to-date net absorption reached 10,094 units, which means Houston has already in two quarters absorbed more units than it had all of last year.”

It’s clear the multifamily market is a star performer in Houston. Reonomy data reports that investment activity has increased over the past eight years, more than doubling since 2010 (719 to 2,554). Although our data shows new development has declined, the city’s absorption and occupancy rates definitely indicate a growing need. Given its performance to date, it’s very possible the market continues its bullish trajectory throughout 2020.

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