The Midwest Is Attracting Record-High Capital
Date Posted: September 8, 2022
Posted In: Discussion,
From Multi-Housing News: The U.S. multifamily market has seen record-breaking rent growth so far this year, backed by correspondingly high demand. The currently volatile state of the economy—with rising inflation and escalating interest rates—will most likely start to take its toll on the sector’s high-paced expansion soon.
But the Midwest multifamily market poses some distinct advantages compared to other U.S. regions. The lack of excess supply has kept vacancy rates stable in all the Midwest’s major cities, according to a recent Northmarq report. And despite the slow start in 2022, experts expect an acceleration of construction starts in the second half of the year.
Jeff Lamott, managing director at Northmarq, explains what is fueling the Midwest multifamily market’s performance and shares his predictions for the remainder of the year.
How did the Midwest multifamily market fare in the first half of 2022?
Lamott: New deliveries got off to a slow start in the first half of the year in the Midwest, due to prolonged challenges in supply chains and shortage of skilled trades to complete projects. Year-over-year, rent growth reached about 12 percent in the Midwest, with an average of 2.5 percent growth in the first quarter.
Sale prices on a per-unit basis hit all-time highs with the continued low interest rates, fueled by record-high capital competing for Midwest multifamily investments. Strong competition from private equity and national syndicators looking to deploy capital in the Midwest was white hot due to getting priced out of the coastal and gateway markets.
Which are currently the hottest markets for multifamily development in the region and why?
Lamott: The Midwest has not been subject to overbuilding the past several years, which has kept vacancy rates stable. While early 2022 got off to a slow start, Kansas City, Mo.; Indianapolis; St. Louis; Cincinnati, Ohio, and Chicago are some of the leading markets for new deliveries.
Many developers still find acquiring land in the Midwest easier than in gateway markets, with the permit process for a building to go vertical done in a timelier manner.