Continuing on its trajectory from 2019, the multifamily real estate market will have an active year ahead with high investor demand coupled with tenacious rent regulation debates. Below is a summary of the overall market fundamentals being projected for 2020 by the leading real estate publications:

Cap Rates

While cap rates were relatively flat in 2019 at the historical low rate of 5.4%, they are expected to decrease slightly in 2020, around 10 basis points.  10-year return rate is projected at 7.5%, above hotel and office sectors, below industrial and retail sectors.   

Rent Growth/Vacancies

Rents are anticipated to increase at 2.4%, just under the long-term average of 2.6%.  Vacancy is expected to rise 20 basis points to 4.5%, below the long-term average of 5.1%. 

Supply

Developers will remain active in 2020 with projected completions of 280,000 units, on par with 2019’s estimated 281,000 units.  While deliveries are expected to remain high, permits and starts likely will decrease. 

Demand

Low interest rates along with strong multi-family fundamentals and strong investor demand will keep 2020 transactional rates healthy – with expected loan origination volume projected to increase from $369 billion in 2019 (increase of 8.8% from 2018) to $390 billion in 2020 (5.7% increase).

Submarkets

Buying or building in the suburbs is projected to have the highest yield, based on market performance and investment returns. Suburban multifamily real estate is projected to outperform assets located in urban areas with lower vacancy and higher rent growth.

Rent Control

New rent control laws were enacted in Oregon, California and New York in 2019 and are anticipated to expand to other states in 2020 and beyond. Potential states to adopt new rent control laws includes Illinois, Washington, New Jersey, Maryland, Virginia, Massachusetts, Minnesota, and others, along with potentially more restrictive legislation in California.