The multifamily market has seen strong performances in 2022 for both the first and second quarters. This turnaround can be attributed to several reasons, such as high demand, available COVID vaccines, and an improved economy.
The national average rent increased by $15 in April, taking the national average up to $1,659. As the year continues, it is expected that the imbalance in supply and demand for multifamily units will only increase. The year-over-year job growth is projected to be 2.8% by the end of 2022, with an estimated 4.3 million jobs.
Insights from our database and PwC and the Urban Land Institute’s Emerging Trends in Real Estate® 2022 report provide an insightful outlook on real estate investment and development trends. Here are seven “backbone” markets listed in the report that may be some of the most affordable cities for multifamily apartments investing in 2022 and beyond.
Albuquerque, NM
Known as the hot air ballooning capital of the world, Albuquerque has excellent weather and clear skies for flying. People from all over the world come to Albuquerque every autumn to witness the world’s largest hot air ballooning event: the Albuquerque International Balloon Fiesta.
In 2020 Albuquerque suffered a loss of approximately 100,000 non-farm related jobs but was able to recoup almost half of the lost jobs by May 2021. While Albuquerque’s mining, logging, retail, and travel markets were hit hard, its economy is building again and strengthening its agricultural, tourism, and manufacturing markets.
Albuquerque’s economy focuses strongly on medicine, science, education, technology, entertainment, and commerce. Major contributors to these fields include Kirtland Air Force Base, Albuquerque Studios, Lovelace Respiratory Research Institute, the University of New Mexico, and more.
- Population: 560,447
- Population growth (10-year): -0.18%
- Job growth (year over year): 1.04%
- Unemployment rate: 3.7%
- Total housing units: 247,926
- Renter occupied: 40%
- Multifamily inventory: 50,354 units
- Average effective asking rent: $1,072
- Rent growth: 15% year-over-year
- Vacancy rate: 4.5%
- Investment sales trends (per Crexi data): $480M in H1 2022; median transaction sales price $3.49M; 7.1% market cap rate
- Median household income: $53,936
- Per capita income: $31,103
Tacoma, WA
Tacoma is located south of Seattle, near Puget Sound, and close to Mt. Rainier. Tacoma is best known for its involvement with the glass arts, as seen at its Museum of Glass. Tacoma strongly focuses on art and history with the Washington State History Museum and the Tacoma Art Museum.
With an estimated population of 215,766, Tacoma is the second-largest city in the Puget Sound area and the third-largest city in Washington. Tacoma is an innovative city, bringing contributions such as the first modern electric light rail service in Washington, having the highest concentration of art and history museums in Washington, and restoring the Thea Foss Waterway.
- Population: 215,766
- Population growth (10-year): 1.18%
- Job growth (year over year): 1.03%
- Unemployment rate: 4.9%
- Total housing units: 91,813
- Renter occupied: 46%
- Multifamily inventory: 343,626
- Average effective asking rent: $1,913
- Rent growth: 12.7% year-over-year
- Vacancy rate: 5.1%
- Investment sales trends (per Crexi data): $252 million in H1 2022; median transaction sales price $609k; 5.35% market cap rate
- Median household income: $64,457
- Per capita income: $34,759
Birmingham, AL
Birmingham was founded in 1871 at the intersection of two railroad lines. A few decades later, the city grew quickly and became known as “The Magic City.” Today, Birmingham’s population consists of approximately 210,928 people, making it the 3rd most populated city in Alabama and the largest metropolitan area in Alabama.
Approximately 559,800 people work in Birmingham, with about 557,100 jobs being non-farm related. Popular markets include banking, education, and medical care, while the top employees include: Brookwood Baptist Health, the University of Alabama at Birmingham, and Regions Financial Corp.
- Population: 210,928
- Population growth (10-year): 2.18%
- Job growth (year over year): 1.04%
- Unemployment rate: 2.2%
- Total housing units: 114,135
- Renter occupied: 54%
- Multifamily inventory: 54,486
- Average effective asking rent: $1,113
- Rent growth: 11.2% year-over-year
- Vacancy rate: 8.1%
- Investment sales trends (per Crexi data): $96.6M in H1 2022; median transaction sales price $261k; 5.7% market cap rate
- Median household income: $38, 832
- Per capita income: $25,725
Oklahoma City, OK
Oklahoma City, commonly referred to as OKC, is the largest city in Oklahoma and the state’s capital. When oil was discovered in the 1920s, OKC’s population quickly grew, and its oil industry is still a major economic contributor today. Some of OKC’s other large markets are natural gas, petroleum products, and livestock.
Southeast of downtown Oklahoma City is Tinker Air Force Base, Oklahoma’s biggest employer, as well as the world’s largest military aircraft repair facility. Tinker Air Force provides more than 26,000 jobs and has paved the way for Oklahoma to become one of the world’s foremost centers in the aerospace business.
Oklahoma City offers a promising place to buy multifamily as several redevelopments and renovations are underway. Recent projects include renovating the Oklahoma City Convention Center, opening Scissortail Park, and modernizing transit with the Streetcar.
- Population: 649,821
- Population growth (10-year): 1.33%
- Job growth (year over year): 1.04%
- Unemployment rate: 2.6%
- Total housing units: 276,084
- Renter occupied: 41%
- Multifamily inventory: 87,184
- Average effective asking rent: $883
- Rent growth: 8.8% year-over-year
- Vacancy rate: 7.4%
- Investment sales trends (per Crexi data): $385M in H1 2022; median transaction sales price $264k; 5.6% market cap rate
- Median household income: $56,456
- Per capita income: $30,976
Hartford, CT
Founded in 1635, Hartford is Connecticut’s capital city and is one of the United States’ oldest cities. Hartford is perfect for history buffs as it houses the country’s oldest publicly funded park, the oldest continuously published newspaper, and the oldest public art museum.
Nicknamed the “Insurance Capital of the World,” Hartford is the headquarters for most insurance companies. Besides insurance, Hartford’s strong markets include medical care, research, and education.
- Population: 122,549
- Population growth (10-year): .56%
- Job growth (year over year): 1.05%
- Unemployment rate: 3.9%
- Total housing units: 55,205
- Renter occupied: 75%
- Multifamily inventory: 61,309
- Average effective asking rent: $1,443
- Rent growth: 8% year-over-year
- Vacancy rate: 2.5%
- Investment sales trends (per Crexi data): $97M in H1 2022; median transaction sales price $284k; 7.9% market cap rate
- Median household income: $36,154
- Per capita income: $22,055
Providence, RI
Providence, situated in the Ocean State, is the best of both worlds: a friendly small town with a big city vibe. It was one of the first cities in the U.S. to industrialize and was well known for its textile manufacturing, jewelry, and silverware markets. While still a manufacturing hub, the economy of Providence also benefits from the healthcare and educational sectors.
Stretching only 1,214 square miles, Rhode Island is the smallest state in America. However, its ambition and goals run large as Rhode Island hosted the first open golf tournament in the U.S and has the oldest carousel in the nation. Families will enjoy Providence’s weather as there are snowy winters and warm summers with cool breezes.
- Population: 179,472
- Population growth (10-year): 3.21%
- Job growth (year over year): 1.03%
- Unemployment rate: 2.9%
- Total housing units: 74,769
- Renter occupied: 62%
- Multifamily inventory: 54,673
- Average effective asking rent: $1,674
- Rent growth: 8.9% year-over-year
- Vacancy rate: 2.3%
- Investment sales trends (per Crexi data): $187M in H1 2022; median transaction sales price $420k; 6.7% market cap rate
- Median household income: $49,065
- Per capita income: $28,733
Buffalo, NY
With a population of 255,805 people, Buffalo is the second largest city in New York. Buffalo has seen an influx of new apartments for sale, constructed in empty municipal buildings and vacant warehouses. Within the past ten years, approximately $3 billion has gone to boosting the multifamily market, with 224 multifamily projects open or in progress.
- Population: 255,805
- Population growth (10-year): 3.29%
- Job growth (year over year): 1.05%
- Unemployment rate: 3.4%
- Total housing units: 131,044
- Renter occupied: 59%
- Multifamily inventory: 41,438
- Average effective asking rent: $1,109
- Rent growth: 4.8% year-over-year
- Vacancy rate: 3.7%
- Investment sales trends (per Crexi data): $190M in H1 2022; median transaction sales price $155k; 6.55% market cap rate
- Median household income: $39,677
- Per capita income: $25,654
The Bottom Line
Investing in multifamily properties in more affordable cities can provide a number of potential benefits, including predictable growth rates that can help stabilize property values, moderate housing and business costs, and a larger pool of potential renters. These factors can all contribute to increased cash flow and potential rental income for commercial real estate investments.
When selecting an affordable city to invest in, it is important to consider the overall growth prospects of the area as well as the specific characteristics of the multifamily market. With careful research and due diligence, investors can find opportunities to maximize their returns while minimizing their risks in these more affordable markets.
