Copyright© 2016 Fannie Mae 1

Multifamily Market Commentary – January 2016

2016 Multifamily Outlook – Expect Continued Demand for Multifamily

The multifamily sector continued to experience solid demand in 2015, and based on current data, 2016 is not expected to

be significantly different despite the elevated amount of new construction underway. However, we do expect a slowdown in 

net absorption levels to lead to an uptick in vacancies, and rent growth could ease slightly. 

We expect continued demand for multifamily rental units in 2016 based on a number of key fundamentals including positive 

job growth, solid demographic trends, and continued renter household formations. 

The ongoing demand for multifamily rental units remained healthy throughout 2015, despite an estimated 276,000 new units 

coming online, according to Dodge Data & Analytics. Rent growth was not only positive but likely ended the year at about 

3.0 percent, well above the pace of inflation, which was at just 0.5 percent at the end of November 2015.

Indeed, net absorption likely remained steady at an estimated 165,000 units, which is down from 2014’s estimated 169,000 

units absorbed, according to Reis, Inc. We expect net absorption in 2016 to remain positive, although at a lower level than 

last year, possibly falling to fewer than 140,000 units absorbed based on 2015 trends. 

Vacancy Levels Expected to Rise

National multifamily vacancies should rise as the supply from an influx of new completions outpaces demand, especially 

over the next few years. For example, as illustrated in the above chart, real estate research firm CoStar shows the national 

vacancy rate beginning to increase this year and the upward trend continuing until 2020. 

Forecasted National Multifamily Trends

Source: CoStar
2

The Fannie Mae Multifamily Economic and Market Research team also believes that the national vacancy rate is likely to 

rise, but to 5.25 percent sometime during the first half of 2016 and climb further, perhaps to 5.5 percent, by the end of the 

year. 

Multifamily Construction Surging – All in the Same Places

As seen in the chart below, the amount of new multifamily construction has been increasing rapidly, especially over the past 

few years. 

According to the Dodge Data & Analytics Pipeline, which distinguishes between apartment and condo units, there were

around 276,000 apartment unit completions in 2015, with another 500,000 units underway, of which about 384,000 are 

expected to come online in 2016. 

At a national level, the addition of that amount of new multifamily units to the existing stock is not unreasonable. Moody’s

Analytics expects to see job growth of 1.9 percent in 2016, or the addition of 2.6 million new jobs. That amount of job growth

could suggest multifamily rental demand closer to 520,000 units, but we believe that amount of absorption is not likely to 

happen because most of the new supply is located in only about 12 metros, and most of that is further concentrated in 

certain submarkets. This year’s job growth and accompanying demand is not expected to be concentrated in just those 12 

metros, which is why we expect supply to outpace demand. 

Rent Growth Expected to Ease Slightly

Rent growth has been exceptionally strong since 2011 and has remained in the 3.0 percent range over the past two years,

only starting to slow down slightly in 2014. Rent growth is expected to be positive once again in 2016, but it is expected to 

ease slightly into the 2.5 to 3.0 percent range, down slightly from 2015. 

As seen in the chart below, multifamily concessions for all property classes remain at very low levels, which suggests that 

supply and demand have been out of balance for a while now. With the advent of new supply, concession rates should 

return to more normalized levels and to even higher levels in those metros with concentrated supply. 

Estimated Multifamily New Construction

Source: Dodge Data & Analytics/CBRE-EA

Note: Pipeline 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. 
3

Source: Axiometrics

Job Growth Forecasts Mixed Depending Upon Metro

Although all of the nation’s major metros are expected to see positive job growth this year, not all of them are expected to 

experience the same level of employment growth, as illustrated in the two charts below. Although Moody’s Analytics’ 

baseline 2016 forecast is for a national employment growth rate of 1.9 percent, a number of metros are not expected to

come close to the national estimate, including Baltimore, Houston, Boston, and even New York and Washington, DC. 

Fortunately, for some of the metros with the lowest projected employment growth in 2016, such as Providence, Milwaukee, 

and even Pittsburgh, there isn’t a large amount of new multifamily supply on the horizon. Others, however, such as 

Baltimore with more than 6,300 units underway, or even more concerning, Houston with nearly 20,000 units underway, 

are likely to see diminished rent growth, particularly in certain submarkets, over the next 12 to 24 months. 

Metros with high employment growth, as seen above, are poised to fare better. Some Florida metros, including Orlando, 

Miami, and Jacksonville, are expected to far surpass national average job growth. Dallas, one of the Texas metros not 

dependent upon the oil and gas sector, is expected to see about 3.0 percent job growth from expansion in its professional 

services, healthcare, and transportation sectors. Phoenix is poised to see the best job growth in the nation this year, at 4.2 

percent, thanks to growth in its professional services, healthcare, and tourism sectors. 

0.0% 1.0% 2.0% 3.0% 4.0%

National

Jacksonville

Nashville

Miami-Fort Lauderdale

Columbus, OH

Dallas-Ft Worth

Atlanta

Indianapolis

Las Vegas

Orlando

Phoenix

Source: Moody’s Analytics

National Multifamily Concession Rate by Class

Markets with Highest Expected 2016 

Employment Growth

Markets with Lowest Expected 2016 

Employment Growth

0.0% 1.0% 2.0% 3.0% 4.0%

National

Virginia Beach-Norfolk

Milwaukee

Minneapolis

Pittsburgh

Boston

Washington DC

New York

Providence RI

Houston

Baltimore
4

2016 Outlook: Continued Demand but Slower Absorption

The outlook for the multifamily sector in 2016 is one of slower absorption despite ongoing demand. The concern is not just 

over the amount of new supply coming online this year but, more importantly, that most of this supply will be concentrated 

in submarkets in about 12 metros. While healthy job growth should spur continued rental household formations, we believe 

this concentration of supply – consisting primarily of Class A luxury units – will disrupt underlying fundamentals, producing 

an increase in vacancy levels and reduction in rent growth trajectories in certain submarkets, thereby negatively affecting 

the overall metro trend.

Nevertheless, the nation’s multifamily sector should see another year of positive rent growth. Ongoing demand combined 

with the higher rent levels of these new Class A units coming online in 2016 should keep average asking rent growth in the 

2.5 percent to 3.0 percent range. The new supply should also push vacancy rates up modestly, likely to 5.25 percent in the 

first half of 2016 and perhaps as high as 5.5 percent by the end of the year.

Kim Betancourt

Director of Economics

Multifamily Economics and Market Research

January 2016

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.