Fogelman SVP of Investments Mike Aiken was recently interviewed on expected market trends in multifamily for 2024.
Check out the video and transcription below:
Q: What are the main factors you believe will influence the multifamily market in 2024?
Looking ahead to 2024, we kind of think of it in two different tranches. One would be operating fundamentals for us in multifamily, and then the other would be capital markets. And so starting with operating fundamentals, overall, we’re in pretty decent shape. Apartments are still just a derivative of the overall macro economy. And by and large, the economy is in good shape. Job creation is still occurring, household formation, et cetera. Still a lot of tailwinds from the cost of housing, especially on the buy side, being so unaffordable. And so that benefits us from an operations standpoint. I do think we’ll see more seasonality like we did last year, which we kind of had a two or three year period where there wasn’t seasonality. It was just kind of different levels of growth throughout the year.
And I think those days are behind us and we’re back to kind of the historical norm. So fourth quarter, first quarter of 2024, probably carrying into maybe even the first part of the second quarter of next year. It will be relatively slow, which is what we’re used to. And then I think it’ll start to pick up and we’ll see more growth and we’ll have the benefit too of not just getting into the warmer months, but also a slowdown in supply, new supply that is, as we head into the second half of next year. And we’ll really see the benefit of that heading into 2025 because right now and this past year, it’s been very difficult as a developer to capitalize new ground up projects. Mainly because of the cost of construction, in part because of the rents story that isn’t quite there like it was.
So from an operating fundamental standpoint, just to summarize, I think we’ll be in good shape next year. It’ll be very similar to historical averages, circa 3% sort of top line growth, which that’s fine. That could be a lot worse. As it relates to capital markets, That’s a big unknown and a different story. We’ve been pretty bad at predicting interest rates throughout the year, for the last 18 months. It’s really been a steady climb upward, and that’s really put a freeze on transactions market. in part because owners are just not willing to part with their assets at the value that they would derive today. I think that’s going to continue to be a problem heading into the first half of next year. And many people have said once we see more stability in the Treasury market, then transactions will occur.
I think somebody said recently that once they know the rules of the game, then they can play. And so there’s a lot of people sitting on the sidelines now saying, we don’t know the rules because we can’t predict where interest rates are going. And therefore, a lot of people are just sitting on the sidelines and watching the market kind of incrementally go down and be comfortable sitting out for the time being. So second half of next year, I think, is most people’s optimistic take on when the transactions market will really open up. I think that’s probably right. And there’s also going to be some degree of forced sellers as we head into the latter part of next year as well as debt maturities come due and some of these higher leverage floating rate loans just become unworkable from an interest carry standpoint where people are going to be forced to look for an exit.