© 2018 Fannie Mae. Trademarks of Fannie Mae. 1.19.2018 1 of 7 

Multifamily Market Commentary – January 2018 

2018 Multifamily Market Outlook – Continued Demand, Just Not 

Everywhere

The U.S. multifamily sector has had a solid run since 2010, with increasing rent growth and low vacancies. Key fundamentals 

have propelled the multifamily sector over the past few years: favorable demographic trends, continued job growth, and 

increasing renter household formations. There are more than 80 million Millennials, making them the nation’s largest 

population cohort, according to the Census Bureau, and this is the cohort that is expected to continue driving demand for 

housing, including multifamily rental housing, over the next few years. 

Demand remained positive in 2017, but that was not the case everywhere. Too much supply of Class A units in some of the 

nation’s major metropolitan areas resulted in lower rent growth and rising vacancies. In 2018, the national vacancy rate is 

expected to increase slightly, and, while rent growth should remain positive, it is expected to grow at a more modest pace. 

Nevertheless, the outlook for the national multifamily sector is that it should remain fairly stable in 2018. 

Net Absorption – Continued Slowdown Expected 

Demand for multifamily rental units remained positive throughout 2017. Net absorption likely totaled about +279,000 units 

absorbed, according to data from CoStar. CoStar expects net absorption in 2018 to remain positive, although at a lower 

level than last year, possibly falling to about +267,000 units absorbed. Net absorption is expected to improve beginning in 

mid-2019, as seen in the chart above. 

Forecasted National Multifamily Trends

Source: CoStar
© 2018 Fannie Mae. Trademarks of Fannie Mae. 1.19.2018 2 of 7

Vacancy Level Expected to Keep Increasing

The national multifamily vacancy rate is expected to rise in 2018, primarily due to the onslaught of new supply expected to 

complete and come online over the next 12 to 18 months. Since most of this new supply is concentrated in a limited number 

of submarkets in only about 12 metros, supply is expected to continue outpacing demand in these metros, thereby pushing 

the national vacancy rate upward, as illustrated in the chart above. The vacancy rate is likely to return to more historical 

levels and then remain fairly stable further out into the forecast, due to ongoing favorable future job growth and demographic 

projections. 

Indeed, the Fannie Mae Multifamily Economic and Market Research team is anticipating that the U.S. multifamily vacancy 

rate will remain in the 5.5 percent range during the early part of 2018, from 5.25 percent as of third quarter 2017, and could 

end the year in the 5.75 to 6.0 percent range. This would bring the national vacancy rate nearer its recent historical average 

of 6.0 percent. 

Rent Growth Expected to Remain Fairly Stable

Rent growth was positive but likely ended 2017 at about 2.5 percent, slightly ahead of the pace of inflation, which grew 2.2 

percent year over year as of the end of November 2017. There has been above average rent growth since 2011, and 2017 

was the first time since then that the national estimated rent growth was below 3.0 percent. The expectation for 2018 is that

rent growth will once again be positive but is likely to moderate and range from 2.0 percent to 2.5 percent. 

As seen in the chart below, multifamily concessions for all property classes remain at low levels, despite recent trends. 

Although it appears that Class C concessions have significantly increased, it appears to have been influenced by one metro 

in particular: Honolulu, with a Class C concession rate at nearly -11 percent. 

In addition, national Class C rent growth in 2017 was at 2.2 percent according to Axiometrics, compared to just 1.7 percent 

for Class A, indicating that property owners are offering more generous concessions up front for Class C units to lock in 

higher rents. 

As more new supply comes online this year, the national concession rate is expected to increase, and more dramatically in 

certain metros that are in the midst of an oversupply of Class A units. Yet, some property owners are already starting to 

forego offering larger concessions and are just dropping asking rents. For example, the New York metro concession rate is 

well above the national average at -1.3 percent as of December 2017, but its rent growth is also negative at -0.5 percent. 

And rent growth is even worse for its Class A segment, at -1.0 percent, according to data from Axiometrics. 

National Multifamily Concession Rate by Class

Source: Axiometrics

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4% A

B

C
© 2018 Fannie Mae. Trademarks of Fannie Mae. 1.19.2018 3 of 7

Multifamily New Supply Expected to Peak in 2018

As seen in the chart on the following page, the amount of multifamily new construction remains elevated, with deliveries 

expected to peak in 2018. 

According to the Dodge Data & Analytics SupplyTrack data, which distinguishes between multifamily properties consisting 

of apartment and condo units, about 381,000 apartment units were completed in 2017, with another 443,000 units expected 

to come online in 2018. In comparison, only about 59,000 condo units came online in 2017 and there are only about 64,000 

condo units expected in 2018. The biggest concern for the multifamily sector is that most of the new apartment rental supply 

underway is believed to consist of Class A units, which command the highest rent level. But in many metros, it is these 

Class A units that are already starting to experience declining rents. 

Too Much Supply in Some Metros

At a national level, that amount of new multifamily units being added to the existing stock is not that unreasonable. Job 

growth is expected to be at 1.5 percent in 2018, according to Fannie Mae’s Economic and Strategic Research Group

forecast, which would add about 2.3 million new jobs. Based on that amount, multifamily rental demand could range from

380,000 units to 460,000 units. 

Multifamily New Construction

Source: Dodge Data & Analytics, January 2017 – Metros with 5,000 or more units underway or completed.

*Anticipated delivery date.

NOTE: Pipeline data is not an actual forecast of activity; it is a monitor of activity reported to date. As more projects are planned and 

tracked, figures in future periods might go up. 

0

20

40

60

80

100

120

140

Thousands

Apartments Condos
© 2018 Fannie Mae. Trademarks of Fannie Mae. 1.19.2018 4 of 7

The reason that level of multifamily rental demand is not likely to occur is because much of the new supply is primarily 

concentrated in about 10 to 12 metros, as seen in the chart below, and most of that is further concentrated in certain 

submarkets. And the estimated amount of national job growth, and its anticipated accompanying demand, is not going to 

be concentrated in just a handful of metros, which is why supply is expected to outpace demand in many of these metros 

over the next 12 to 18 months. 

Job Growth Slowing in Some Metros with New Supply

Although the nation is expected to see positive job growth this year, that doesn’t mean that all metros will experience the 

same level of employment growth, as illustrated in the two charts below. Although Fannie Mae’s Economic and Strategic 

Research Group forecast for 2018 anticipates national employment growth rate of 1.5 percent, there are a number of metros 

expected to have employment growth below the national estimate, including Boston, New York, and Washington, DC, all 

metros with a large amount of new multifamily rental supply on the horizon. 

The New York metro is expecting the largest amount of new supply, with more than 59,000 units underway, of which 45,000 

units are expected this year alone. Based on its lackluster anticipated job growth rate, at best the metro could produce 

demand for only about 23,000 multifamily rental units. Boston has nearly 21,000 units underway, of which nearly 15,000 

units are expected to deliver in 2018. Based on an anticipated job growth rate of just 1.2 percent, potential multifamily 

demand of about 4,100 units will fall far short of upcoming supply. Washington, DC has more than 21,000 units expected 

Multifamily Apartment Units Underway – Select Metros

 -

 10

 20

 30

 40

 50

 60

 70

 80

 90

 100

Thousands

Beyond 2019

2018 2017

Source: Dodge Data & Analytics, January 2018 – Metros with 4,000 or more units underway or completed.

NOTE: SupplyTrack data is not an actual forecast of activity, it is a monitor of activity reported on to-date. As more projects are planned 

and tracked, figures in future periods might go up. 

Year of Completion/Expected Completion
© 2018 Fannie Mae. Trademarks of Fannie Mae. 1.19.2018 5 of 7

to come online this year, yet anticipated job growth of 1.2 percent will at best produce demand for just 10,000 units. As a 

result, all three of these metros began experiencing negative rent growth during the latter part of 2017 and will likely continue 

to do so in 2018. 

Other Metros Possibly Undersupplied

Job growth in other metros is expected to fare better, as seen below. Some of the Florida metros, including Jacksonville, 

Orlando, Tampa, and Miami, are expected to far surpass the national average. Dallas and Austin are expected to see job 

growth of more than 2.0 percent due to continued expansion in the professional services, technology, healthcare, and 

transportation sectors. 

At 3.2 percent, Jacksonville has one of the highest projected job growth rates in the nation. The metro could easily produce 

demand for a minimum of 3,600 units, yet fewer than 1,800 units are expected this year. Las Vegas is even more 

compelling. With expected job growth of nearly 3.0 percent, there could be demand for at least 6,000 units, yet only about 

3,000 units are expected to come online in 2018. Phoenix is another “good news” story, with anticipated job growth of 2.6 

percent. That could produce demand for at least 10,000 units, yet only about 8,000 units are expected this year. 

Source: Moody’s Analytics

Select Markets with Higher Expected 2018 

Employment Growth

Select Markets with Lower Expected 2018 

Employment Growth

0.0% 1.0% 2.0% 3.0%

National

Austin

Portland

Miami

Dallas

Tampa

Orlando

Phoenix

Las Vegas

Houston

Jacksonville

0.0% 1.0% 2.0% 3.0%

Detroit

New York

San Jose

Philadelphia

Chicago

San Francisco

Los Angeles

Boston

Washington DC

National

Atlanta
© 2018 Fannie Mae. Trademarks of Fannie Mae. 1.19.2018 6 of 7

Cap Rates Likely to Remain Low

With multifamily cap rates at historically low levels – currently 5.6 percent, according to Real Capital Analytics – it would 

seem that they have nowhere to go but up. But with the passage into law of the Tax Cuts and Jobs Act of 2017, will they?

Multifamily cap rates have remained in the 5.6 percent range for most of 2017 due to the ongoing influx of capital flows and 

investor demand. With interest rates also staying low and real estate investment expected to get a boost from the recent 

tax cut legislation, it seems likely that investors will stay interested in the multifamily sector as well. In fact, according to a 

November 29, 2017 article in National Real Estate Investor, the multifamily sector remains “... a favored property type 

among commercial real estate investors. When asked to rate the attractiveness of the different core property types on a 

scale of 1 to 10, [NREI] survey respondents scored multifamily the highest at 7.9....”

As a result of this anticipated investor interest, while an uptick in new multifamily construction investment is not expected

due to oversupply concerns in many submarkets, investment in existing multifamily properties is expected to remain on par 

with 2017 levels. Therefore, the projection is that multifamily cap rates are likely to remain stable in 2018. 

Source: Real Capital Analytics, and Federal Reserve, Selected Interest Rates H.15, per Moody’s Analytics

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

10-Year Treasury

Cap Rate

Treasury and Multifamily Capitalization Rates
© 2018 Fannie Mae. Trademarks of Fannie Mae. 1.19.2018 7 of 7

2018 Outlook: More of the Same

The outlook for the multifamily sector in 2018 remains positive but relatively stable. Multifamily mortgage origination volume 

levels are expected to remain similar to, or slightly lower than, 2017’s activity levels. The Mortgage Bankers’ Association 

anticipates multifamily originations volume to reach $258 billion, down compared to its estimated $271 billion for 2017. 

The amount of new supply expected to come online this year is mostly located in about 10 to 12 metros, some of which are 

likely to experience a slow-down in demand due to upcoming oversupply. While there should be job growth spurring 

continued rental household formations, this concentrated amount of supply – consisting primarily of Class A units – will likely 

cause a disruption in underlying fundamentals in certain metros. Rising vacancy levels and reduced or negative rent growth 

could occur in certain submarkets, which in turn is likely to negatively affect overall trends in the nation’s oversupplied 

metros. 

It is important to keep in mind that this slowdown is expected to be short-lived, occurring over the next 12 to 18 months. 

After that time, we expect that the multifamily sector’s underlying fundamentals will improve, as new supply slows and stable 

job growth and demographic trends continue, resulting in increased demand. 

Kim Betancourt

Director of Economics

Tim Komosa

Economist Manager

Multifamily Economics and Market Research

January 2018

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Multifamily Economics and Market Research 

Group (MRG) included in these materials should not be construed as indicating Fannie Mae's business prospects or 

expected results, are based on a number of assumptions, and are subject to change without notice. How this information 

affects Fannie Mae will depend on many factors. Although the MRG bases its opinions, analyses, estimates, forecasts and 

other views on information it considers reliable, it does not guarantee that the information provided in these materials is 

accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these 

views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by 

the MRG represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie 

Mae or its management.