CONTI closely monitors hundreds of economic, infrastructural and demographic factors within the real estate landscape in order to mine for prime multifamily assets.
The macroeconomy and real estate markets are shifting rapidly in the face of rising inflation and interest rates, but the core of our investment thesis has remained true – a huge tide of demand for housing has hit the U.S. at a time when supply is sorely lacking. In combination with the historically high cost of homebuying, this makes apartment renting an enticing and more affordable option for millions of Americans. Thus, multifamily real estate can be a powerful asset within an investment portfolio.
CONTI’s proprietary data modeling tool, the CONTI Index, tracks more than 400 weighted indicators derived from millions of data points collected in real time. Our real estate analysts consistently scrutinize this data when hunting for outperforming multifamily opportunities. These hundreds of indicators fit within six categories: Housing supply and affordability, demographics, labor market durability, risk and reward, quality of life and fiscal health.
Based on rankings generated by the Index, here are CONTI Capital’s top 10 markets for multifamily investment in the second half of 2022:
- Dallas/Fort Worth, Texas
The Dallas Metroplex is CONTI’s #1 multifamily market for investment in the second half of 2022 due to the metro’s demographics, labor market durability, multifamily performance and quality of life. The number of residents aged 20-34 – CONTI’s preferred “prime renter” demographic – has grown significantly in Dallas. The market also ranks highly in total population growth, net migration and household formations. This is a strong signal for multifamily as it suggests a market with strong long-term growth potential stemming from the age profile and factors associated with housing demand.
Major corporations continue to flock to the Dallas metro, attracted to the area’s low-cost and business-friendly environment. Caterpillar is the latest firm to relocate to Dallas, joining other recent corporate in-migrants including AECOM, Charles Schwab, JP Morgan and Liberty Mutual. Dallas’ diverse economy has allowed the metro to outperform the rest of the country in employment and GDP growth over the past several years.
Dallas also features one of the strongest multifamily markets in the U.S. thanks to sky-high net unit absorption and a relatively small construction pipeline, considering the depth of demand. New construction in the metro is concentrated around the highest-growth suburbs to the north, leaving very few pockets of potential oversupply.
- Atlanta, Georgia
Exceptional demographic growth drivers make Atlanta our second-best market for multifamily investment. Over the past year alone, Atlanta’s population grew by 60,500 people, and our forecast models expect the market to add another 60,000 people over the next four quarters.
Atlanta’s burgeoning status as a financial technology (FinTech) hub bodes well for the market’s future since FinTech combines the high growth of tech with the stable outlook for finance. Driving the market’s tech cluster is a robust human capital pipeline flowing from a number of high-quality educational institutions. The CONTI Index places greater weight on markets characterized by industry “clusters,” which our research indicates are correlated with long-term economic performance.
Although Atlanta has a larger multifamily supply pipeline when compared to a market like Dallas, our market-level site selection models guide us towards zip codes in the high-supply-barrier northern suburbs where new construction is minimal. It is these areas where we expect significant multifamily outperformance in the years ahead.
- Austin, Texas
The Texas capitol demonstrates very strong readings on labor market durability and quality of life. Across the top 50 markets we track, Austin’s mix of employment sectors has the strongest correlation with demand for top-tier apartments, as well as a correlation with rent growth. Austin also benefits from a high rate of labor force participation, which our research indicates is highly indicative of long-term performance.
Austin’s technology cluster consists of both software design and advanced manufacturing, distinguishing the market from some of its coastal technology peers. Many California and New York-based tech firms are increasingly gravitating to Austin thanks to a relatively affordable housing market, compared with Gateway markets, and a high-skilled workforce. The local multifamily market benefits from a consistent pipeline of young adults attending the University of Texas, many of whom remain within the metro post-graduation.
The apartment supply pipeline in Austin is full, although the bulk of new construction—and the greatest supply-side risk—is concentrated within the urban core. While the pipeline may appear daunting to some observers, the depth of demand in this market driven by corporate in-migration and expansion largely mitigates supply risk.
- Raleigh-Durham, North Carolina
With its high scores on our measures of quality of life and fiscal solvency, Raleigh is our fourth-best market for multifamily investment as of mid-year 2022. Across the top 50 markets we track, Raleigh boasts the second-lowest crime rate, behind only Boston. The market is also our second-best metro for fiscal solvency, which indicates that Raleigh is unlikely to resort to excessive taxation or problematic rental regulations in order to meet funding obligations. In other words, financial and political risk to multifamily is low in the greater Raleigh metro.
The driving force of Raleigh’s exceptional performance over the past 10 years is the cluster of tech and life science firms in and around the Research Triangle. A highly educated labor pool continues to gravitate to Raleigh thanks to strong employment opportunities combined with relatively low costs of living. For this reason, the high-end multifamily market in Raleigh is particularly strong. The region suffers from a shortage of single-family housing, which pushes highly-compensated knowledge-based workers into the rental market. As a result, Raleigh is one of our top markets in terms of historical and forecast rent growth.
- Charlotte, North Carolina
The second North Carolina market in our top 10 rankings, Charlotte benefits from strong demographic growth drivers and a high quality of life. The market scores incredibly well on our multiple measures of net migration. About 25,450 people moved to Charlotte over the past year according to our high frequency migration models. Net migration to the market over the past 12 months has been equal to about 1% of Charlotte’s existing population, which is the third best performance on this metric across the top 50 markets we track.
Charlotte’s recent success can be attributed to the market’s status as the South’s finance capital. The metro is home to banks like Truist, Wells Fargo and Bank of America as well as fintech companies like Credit Karma. Charlotte is also forming an advanced manufacturing cluster thanks to firms like Honeywell, Nucor and Sealed Air. Given the stability and long-term growth outlook for advanced manufacturing and finance, Charlotte’s economy is expected to easily outperform the rest of the U.S. in the years ahead.
The local apartment market is benefiting from its relative affordability compared to similar markets like Nashville, Austin and Atlanta. We see Charlotte as a net beneficiary of the work-from-home transition which has allowed higher-earning individuals to live and work outside major coastal markets. Charlotte is also experiencing some active opposition to development by residents, which is serving as a political supply barrier in the market’s premier suburbs.
- Houston, Texas
Often left out of the typical Sun Belt market analysis due to a history of challenges related to climate and over-dependence on oil, our data models suggest that Houston is one of the most underrated apartment markets in the U.S. The bulk of Houston’s strong performance stems from the market’s extremely favorable demographic profile. From our measures, Houston is #1 in prime renter and total population growth across the top 50 markets we track. Not only does Houston feature one of the strongest growth rates for individuals between the ages of 20-34, it also features some of the strongest growth momentum in this age group, a key factor in our analysis.
Houston is home to one of the largest concentrations of Fortune 500 companies in the U.S. thanks to a favorable business environment. In addition to major energy firms, Houston also boasts world-class medical research institutions, which is boosting the market’s share of highly compensated STEM-related employment – 7.2% of total employment compared to 6.7% for the U.S. as a whole.
Contributing to Houston’s underrated apartment market status is the metro’s relatively small apartment construction pipeline, which is almost 40% smaller than Dallas’ pipeline despite similar population growth rates in both markets. This trend will likely lead to several years of strong rent and occupancy gains in Houston.
- Phoenix, Arizona
Phoenix benefits from solid demographic and labor market drivers. Total employment in Phoenix has increased at a cumulative average growth rate of 2.2% per year over the past five years – one of the best employment growth rates in the country. Looking forward, we forecast the market to add more than 137,600 jobs over the next five years. Phoenix’s labor market is driven by its diverse economy, growing advanced manufacturing sector (particularly semiconductor manufacturing) and rapid population growth. Finance, real estate and professional services are also well-represented in this market.
On the multifamily side, Phoenix has attracted investor attention in the post-COVID world as the property market’s underlying fundamentals continue to hit new records. Following the local housing bust in the mid-2000s, single-family development in Phoenix has been tepid at best. As a result, demand for multifamily housing is high. From our perspective, the strongest locations for apartment investment in Phoenix are in the relatively low new construction submarkets to the north. To be sure, the supply pipeline is very large in Phoenix as of mid-year, but demand growth appears to be commensurate with the incoming supply.
- Nashville, Tennessee
Nashville has the single most durable labor market across the top 50 markets we track. In particular, Nashville’s office-using employment outlook gives us very strong conviction in this market over the near- and long-term. Over the past year, office-using employment – which has a stronger correlation with multifamily demand than total employment – increased by 8.5% in Nashville. The market also enjoys one of our best office-using employment growth outlooks over the next 5 years.
It should be no surprise that Nashville dominates in terms of professional employment given the market’s concentration of high-skill labor, corporate relocations, major research universities and cultural amenities. Oracle and Amazon alone are responsible for about 5% of Nashville’s recent office-using employment growth. Strong employment and income growth are a boon for the market’s multifamily sector.
The robust construction pipeline can obscure Nashville’s very strong demand drivers. We expect to see some short-term softness as the wave of new construction is absorbed. However, we see long-term outperformance in Nashville’s multifamily market stemming from the metro’s solid labor market outlook.
- Orlando, Florida
Within our Risk-Reward sub-index, Orlando is one of the top performers out of the 50 markets we track. The market outshines all others in terms of how we assess rent and revenue growth, both historically and in our forecast window. Apartment rents have increased by more than 20% over the past year and we forecast continued double-digit growth over the next two years. Orlando also stands out for being the top market for revenue growth, which combines both rent and occupancy increases. This is particularly relevant to us because it speaks to the depth and longevity of the market’s demand pool.
Orlando has undergone a structural shift since the worst of the pandemic recession. Despite heavy exposure to leisure and hospitality employment, the market rapidly recovered all lost jobs thanks to a thriving – and underrated – professional services sector. Young adults are increasingly gravitating to this market, driving even higher demand for rentals. From our perspective, the current supply pipeline is insufficient to meet the near-term demand for apartments. Unlike several other top-performing multifamily markets, we have yet to detect any softening in either rent growth or occupancy.
- Tampa, Florida
Rounding out our top 10 markets for the second half of 2022, Tampa benefits from high scores across all of our six sub-indexes. Housing supply is expected to remain low – multifamily permitting levels are some of the lowest across the markets we track. In terms of risk and reward, the metro is a top performer in rent, revenue and NOI growth.
On the labor market side, Tampa’s employment sector mix is highly correlated with apartment demand and rent growth. During the past five years, for every five jobs created, only one multifamily permit was pulled.
Tampa has experienced stellar net migration over the past five years, measured in the total number of in-migrants as well as the number of in-migrants as a share of the total population. Nearly 32,000 people have moved to Tampa over the past year, representing 1% of the market’s total population. Finally, our quality of life index shows low crime rates, a relatively healthy population and a favorable climate. All of the above factors in conjunction with the meager new multifamily supply pipeline give us a high conviction in Tampa’s near- and long-term performance.