How to prepare for the next real estate downturn

April 18, 2019 | Blog | Market Insights

The multifamily market is positioned to perform well even if a recession comes

While the local multifamily market continues to overperform, smart investors should know that this won’t always be the case.
As a whole, the apartment sector is well-positioned to continue to perform in case of a real estate downturn. But as with any investment, it’s prudent to understand what you should do if things change.
Keep reading to learn which multifamily assets may fare better than others, and what multifamily owners can do to be prepared.

How the multifamily market stacks up

With homeownership rates nearing an all-time low, multifamily units will continue to see strong demand. Apartment renting continues to provide a more affordable option that also offers more flexibility than owning a home.
Luxury apartments may face the highest risk in case of a real estate downturn. We often see more expensive units concentrated in downtown areas and central business districts (CBDs). In these locations, there’s increased competition from new developments and recently renovated complexes.
The higher end of the market in places like Miami is already beginning to feel the strain, where overbuilding of luxury apartments has led to a 70-month supply of units for sale.[1]
Often, luxury apartments are priced to the top of the market—so there’s an increased risk of delinquencies and vacancies during a downturn. However, strong job growth will continue to drive the demand for centrally located apartments.
Less expensive apartments on the other hand should continue to see strong demand, even if there’s a real estate downturn, especially in or around large metropolitan areas.

How can multifamily owners can be prepared

Owners of higher priced multifamily can get prepared by making sure their rents are competitive and that their units have all of the amenities that today’s renters are looking for.
For owners of less expensive multifamily units, pay attention to your resident retention rates and pursue avenues to enhance renter satisfaction. You could even consider slightly longer lease terms as a way to retain tenants. Keep an eye on your expenses, and conduct regular inspections and utilities audits to identify any areas to save money.
Looking to invest in a multifamily property? Our advice is to work with an experienced multifamily advisor who understands the market cycles and can identify the most lucrative investment opportunities in your area.
Want more investment insights? Our blog is filled with the latest multifamily market news, expert advice for both buyers and sellers, and other valuable real estate insights. See the latest articles here.
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  1. CoStar


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