Averages Tell You Little: The Effects of Multifamily Construction on Rents

Abstract

Over the next several years, U.S. commercial real estate will likely see one of the largest supply waves of multifamily product in recent memory. In this article, the authors examine two economically strong markets, Austin and Boston, which have already started to see significant multifamily construction. The authors look at rent growth of existing properties before and after deliveries in 2013, separating properties by distance to the 2013 deliveries. They find that there is a strong effect on the rent growth of existing properties based on how close they are to new construction. In general, the results show that proximity to new construction is beneficial to average-quality 3 Star properties and detrimental to higher-quality 4 Star and 5 Star properties. The findings reported by the authors will help investors to better position their portfolios against the effects of increased multifamily supply.

TOPICS: Real estate, portfolio management/multi-asset allocation