As some major coastal metros become increasingly overbuilt, multifamily investors are turning to secondary and tertiary markets strategically positioned for a major boom in supply. Using data from the third quarter of 2019, we examined major metros offering an ideal mix of high occupancy, strong rent growth, and changing demographics that favor new renters.
Three metros that stood out from the rest were Cincinnati, Chattanooga, and Colorado Springs. We broke down exactly why these areas are so development-friendly and why investors would do well to keep these markets at the top of their radars.
Rapid Population Growth
Each of the three locations boasted steady population growth, along with in-migration exceeding 1,000 new residents per metro. Both Cincinnati and Chattanooga experienced annual population growth during the third quarter that outpaced their respective five-year averages. In addition to the opportunity to take a high-paying job offer in an evolving urban core, residents were attracted to these metros for their relatively affordable effective rents, anywhere from $300 to $500 per month less than the national average.
Occupancy in each of the three metros continued to exceed 96.0% (and the national average of 95.8%) during the third quarter of this year, thanks in part to this population growth driving demand for rentals. Strong occupancy and rising household incomes in each metro encouraged apartment operators to increase rents as well. Effective rent growth in each market exceeded the national average of 3.2% during the third quarter.
Strong Health Care Hiring
Expansion in the health care industry recently played a major role in making Cincinnati, Chattanooga, and Colorado Springs even more ideal for multifamily development. In each of the three metros, hiring in the health care and education sector was either the leading or second-leading employment driver.
Multiple major health care developments came online during this period, including the $22 million UC Health tower expansion in Cincinnati and the new Children’s Hospital Colorado in Colorado Springs, part of $1 billion health care investment strategy planned through 2020.
Overall, year-over-year rate hiring in each of the three metros exceeded the national average of 1.5% Household income increased by an average of 2.1% across the three metros during this period as well, a shift that contributed toward strong leasing and rent growth across the board.
Busy Development Pipeline
An important potential indicator of unmet demand in an up-and-coming metro is a full development pipeline that heavily favors upscale and luxury properties. This is the case for each of the three metros we expect to be hotbeds of multifamily development for the foreseeable future.
- 1,700 units are schedule to come online in Cincinnati in 2020, led by the 280-unit One Riverside.
- 800 units are slated for 2020 in Chattanooga; the largest development among these is the 290-unit Approach at Summit Park.
- 520 units, including those at the 388-unit Falconview I development, are expected to be completed and leased across the Colorado Springs metro during 2020.
Additional 3Q 2019 Analysis
Berkadia’s comprehensive third quarter Multifamily Reports are now available. Each market-specific report contains high-level insights that help investors fully leverage their most valuable multifamily development opportunities.