Amidst the ripples caused by the crisis with Chinese property giants, real estate investors are seeking alternative markets to diversify risks and capitalise on emerging opportunities.
The U.S. multifamily housing sector, despite its challenges stemming from overdevelopment and capital market pressures, presents a compelling case for investors looking to navigate the current market dynamics and tap into the potential of the rental market.
Principal Asset Management Senior Director, Global Research and Strategy Arthur Jones highlighted the sustained demand from younger generations where the younger demographic, including millennials and Gen Z, continues to favour rental living owing to factors such as flexibility, affordability, and changing lifestyle preferences.
Principal Asset Management Senior Director, Global Research and Strategy Arthur Jones
This sustained demand fuels the multifamily housing market, making it an attractive proposition for investors.
BusinessToday asked Jones on his perspectives on how the U.S. multifamily housing sector is impacting real estate demand in Malaysia and Singapore to which he replied: “Although there are nuances in these markets with regards to their specific economic conditions and regulatory frameworks, the universal trends impacting the real estate sector in both Malaysia and Singapore are similarly observed in the United States.
“Factors such as unfavourable homeownership economics and lifestyle choices, creates a distinct investment environment with unique characteristics.”
“The distress we are seeing today in the US is the non-systematic risk that arose from some developers and operators borrowing at low interest rates who now need to refinance in a much higher rate environment.
“That said, investors in Malaysia and Singapore can leverage the demand factor and potential distress in the sector strategically to position themselves to capitalise on the promising outlook in the markets.” Jones added.
The U.S. multifamily housing sector faces challenges from both overdevelopment and capital market pressures, with ongoing issues anticipated through 2025.
However, solid macroeconomic fundamentals and sustained demand, particularly from younger generations favouring rentals, offer potential opportunities in the medium-term for well-capitalised investors to exploit distress in the market.
The multifamily housing real estate sector currently faces a slew of challenges stemming from high levels of development, lower transaction volume, declining values, and a wall of upcoming maturities that have created the potential for pockets of distress. However, again, it’s this distress, alongside stable demand, that is creating a unique entry point to the sector for well-positioned investors.
Notably, while the sector accounts for less than 10% of the total commercial real estate distress, potential distress looms large, representing nearly a third of the market. Additionally, distress is likely to persist in 2024 and 2025 as rents continue to trend lower, vacancy rises, and USD470 billion in multifamily loans mature during a period when less well-capitalized operators are facing difficulty refinancing on favourable terms.
However, despite rental market fluctuations and challenges in loan refinancing, the sector is buoyed by strong demand. In particular, younger generations are extending their rental periods, influenced by the unfavourable economics in the for-purchase market, mobility needs, and lifestyle choices that prioritise experiences over homeownership.
For investors, despite its near-term challenges, the strong fundamentals underpinning the multifamily sector’s demand profile suggest a promising recovery in the medium term. Investors with substantial capital are well-positioned to leverage these conditions, with the market anticipated to bounce back within three to five years, offering a strategic window for investment in the coming 12 to 18 months.
The U.S. multifamily housing sector faces challenges from both overdevelopment and capital market pressures, with ongoing issues anticipated through 2025.
For investors, despite its near-term challenges, the strong fundamentals underpinning the multifamily sector’s demand profile suggest a promising recovery in the medium term. Investors with substantial capital are well-positioned to leverage these conditions, with the market anticipated to bounce back within three to five years, offering a strategic window for investment in the coming 12 to 18 months.
