Not surprisingly, the East and West Coasts are the places to own multifamily commercial real estate. However, entering those markets now is a potentially expensive proposition. The West Coast is again ahead of the pack. The Seattle-Tacoma market leads this year’s index with the drivers likely being the strength of local employers in the tech sector coupled with soaring home prices. The Los Angeles market is listed as 2nd, according to a recent study by Marcus & Millichap, and showed strong rent growth and cost of housing in general, but with ever so slightly lesser stats in the employment and household growth levels. Coming in 3rd is Minneapolis-St. Paul, MN. Let’s hear it for their diverse economy, job growth and accompanying rental demand. East Coast markets Boston and New York are listed as 6th and 7th respectively, each with strong rental demand and tight vacancy numbers.
What may surprise you to know is that the secondary markets are gaining in numbers and strength. For example, the Riverside/San Bernardino market in California is listed as the 8th most expensive. It was enlightening to see that this clearly secondary market in Southern California, is listed ahead of Orange County (18th) as well as Orlando, FL (16th) and Raleigh, NC (17th). And behind those east coast markets were Texas cities; Houston (24th), Dallas/Ft. Worth (25th), Austin (26th) and San Antonio (29th). Why? These secondary markets appear to have stronger employment bases and tight vacancy stats.
Perhaps this is because these market areas can adjust to economic drivers faster than larger markets. And then there are the recovering secondary markets such as Phoenix (12th), with expanding economies and employment base which attracts new households who are good to start out as rental occupants before dipping into the single-family markets.
We have been looking at the numbers, the trends in the cities listed below, and are seeking opportunities in secondary markets which have solid metrics such as rent growth historically, and employment and household growth levels, which are synonymous with real estate opportunities in such a competitive environment. This analysis indicates to me that we should focus our company’s multifamily acquisition strategy should be focused on properties in cities such as Tampa/St. Petersburg, FL; Columbus, OH; Cincinnati, OH; Cleveland, OH and Baltimore, MD.
If you are a local broker in any of these areas, please contact me at email@example.com or 310.988.4240.