5 Multifamily Markets to Consider in 2022
I live in Los Angeles now, but I grew up in Buffalo, NY, and I love that town! Full of incredible people, delicious food (hello wings!), plenty of activities & events, and the Buffalo Bills! As much as I love Buffalo and believe it is a great place to live, would I invest in apartment buildings there? Maybe…but it isn’t near the top of my list.
This raises the question, what makes a market a great place to invest? As I see it, there are decent investment opportunities in almost every city/market. Which ones you choose depends on many factors, including your investment return criteria, what you are familiar/comfortable with, and the competitive advantage of the team you are partnering with.
This article will touch on 5 markets to consider for investing in multifamily. These are not the only 5 markets to consider, nor are they necessarily the “best,” but they serve as good examples of what to examine when evaluating a market.
Whenever we evaluate a multifamily investment opportunity, we assess it in the following order of priorities:
- The sponsor team
- The market/city
- The property
- The business plan
In general, we invest in markets that have solid fundamentals and momentum. It doesn’t mean other markets couldn’t work, but when considering where to invest, why not start with areas that already have foundational investment criteria working in their favor?
*One disadvantage of investing in markets that have momentum is that many other investors are competing for those opportunities. This competition makes doing your due diligence on the sponsor, property, and business plan even more critical.
Some of the criteria we are using to evaluate these markets that have strong fundamentals and are positioned for growth in 2022 are:
- Population growth
- Job growth
- Rent growth
- Employment diversity
- Local economics
These are in no particular order or ranking.
Tampa/St. Petersburg, Florida
Not even Tom Brady’s retirement will hold this metro back! There are several reasons why migration to Florida has been strong in recent years, including warmer weather, a business-friendly environment, and no state income tax.
The Tampa/St. Petersburg area is projected to see steady population growth with an estimated net 35,000 additional residents this year and projected population growth of over 1% per year consistently, opposed to the national average of 0.6%.
This city is also a popular spot for corporate relocation, resulting in steady employment growth and industry diversity. Vacancy rates fell to 2.0% in 2021, and while 5800 units are expected to be delivered in 2022, vacancy rates are projected to remain flat. According to Marcus and Millichap, rent is expected to increase by 5.5% after rising by 9.2% in 2021.
Phoenix, Arizona
I’ll spare you the “This market’s so hot….” jokes. Seriously though, when your dog needs to wear booties to prevent paw-burn, that’s red-hot.
2021 rent growth in Phoenix was over 20%! Wow. Marcus and Millichap projects 7.2% rent growth in 2022, and I have seen other estimates as high as 15%. Phoenix is expected to add over 50,000 households in 2022, twice the national average.
Why are people moving there? Warmer weather, business-friendly environment, lower cost of living (for now) than the coastal cities. Do you see the theme?
While over 20,000 units are expected to be delivered in 2022, estimated vacancy remains low at 2.8%. Investors are paying a premium to buy in this market, and to me, partnering with experienced operators with a market advantage is the way to get in here.
Raleigh-Durham, North Carolina
Raleigh is full of brilliant people and has been on steady population growth of 3.3%-4.45% over the past few years, according to macrotrends.net. The Raleigh-Durham MSA is home to Research Triangle Park, which has been attracting companies thanks to business-friendly tax policies and a highly educated workforce. The Triangle is home to over 20 colleges and universities.
The combination of quality education and increased employment drives apartment demand. There is a record 8,000 units expected for delivery in 2022, which may increase vacancy a bit and slow down the rent growth (it was over 19% in 2021). Nevertheless, as a long-term market, the Raleigh-Durham area continues to have strong potential for years to come.
Las Vegas, Nevada
Marcus and Millichap project 6.1% employment growth in Las Vegas in 2022, the highest for the 46 cities it ranks. Some of this is due to the continued recovery of the tourism industry, but there is also growth in the industrial sector, bringing in more trade, transportation, and utility workers that historically occupy the Class B and C type apartment buildings we look for.
Berkadia estimates an estimated household growth of 29,000 in 2022, rent growth of 9.3%, and average vacancy of 3.3%. With an average rent of $1383 in 2021, Vegas remains a relatively affordable area, especially for those moving from California’s higher cost of living region.
Oklahoma City, Oklahoma
I included OKC here because it represents a different type of investment opportunity. OKC is a steady growth city that is still reasonably affordable, with an average rent of $918 per month. The investment thesis in a town like this assumes steady cash flow and moderate appreciation, whereas the other cities I wrote about are likely to have less cash flow but potentially greater market appreciation. Advantages to a city like this, while still competitive, are that it may be less competitive than some larger high-growth cities. This means the average CAP Rate is generally higher, yielding higher cash flow.
A strong market is just one variable to consider when investing. While there may be excellent opportunities in many places, curating a list of cities, MSA’s, or regions you are interested in can narrow your focus and help you hone in on finding strong operators in those areas that you want to partner with. That’s not to say that an amazing opportunity in Buffalo won’t come along, but when you know precisely what you are looking for, you can more easily run that opportunity through your criteria filter and decide whether to spend time on it.
Below are some of the sites and resources I used for the data in this article.