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CONTRIBUTORS

Indraneel Karlekar

Global Head of Research & Strategy
Clarion Partners

Preview

Over the past decade, US multifamily has been among the most sought-after sectors by institutional investors due to its necessity characteristic, the underlying strength of property level fundamentals, and high historic risk-adjusted total returns. It has remained an integral part of commercial real estate (CRE) investment portfolios with a portfolio weighting of 29.1% in the NCREIF Fund Index-Open End Diversified Core Equity (NFI-ODCE).1

Key takeaways:

  • Macro drivers are sustaining rental housing demand primarily due to two macroeconomic factors:
    • The national housing shortage
    • Favorable demographics: robust renter base in all generations
  • Financial headwinds: Acute for-sale housing affordability challenge persists:
    • Cheaper to rent than to own in most metros
    • US for-sale housing price has continued to climb
    • Many US counties report a home price above the national median
    • Explosion in renter households
    • Rise in cost-burdened households
  • Ongoing shift: Sun belt lure and suburban boom
  • Multifamily investment performance is strong, especially in select segments

Clarion Partners believes that well-located, high-quality rental housing will continue to be a strong performer over the long term due to a variety of macro, demographic, and financial factors.

ENDNOTES

  1. NCREIF Property Index. Q4 2023. Note: The NFI-ODCE is a capitalization-weighted, gross of fee, time-weighted low leverage return index with an inception date of December 31, 1977

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Equity securities are subject to price fluctuation and possible loss of principal.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Risks of investing in real estate investments include but are not limited to fluctuations in lease occupancy rates and operating expenses, variations in rental schedules, which in turn may be adversely affected by local, state, national or international economic conditions. Such conditions may be impacted by the supply and demand for real estate properties, zoning laws, rent control laws, real property taxes, the availability and costs of financing, and environmental laws. Furthermore, investments in real estate are also impacted by market disruptions caused by regional concerns, political upheaval, sovereign debt crises, and uninsured losses (generally from catastrophic events such as earthquakes, floods and wars). Investments in real estate related securities, such as asset-backed or mortgage-backed securities are subject to prepayment and extension risks.

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