CONTI Index: Top 10 Markets for Multifamily Investment in 2022

The United States remains meaningfully undersupplied of single- and multi-family housing. The expected wave of Millennials aging into their household formation and homeownership years coincided with an unexpected, once-in-a-century public health crisis, which simultaneously turbocharged demand for housing and curtailed available inventory. As a result, single-family home prices and apartment rents have skyrocketed. Pre-COVID concerns about an overbuilt multifamily sector have rapidly given way to the simple realization that the U.S. needs more housing to accommodate current and forecast demand. Commercial real estate investors are keen to this new reality and are driving up sales volume and pricing in the sector amid intense competition for acquisitions.

At the end of 2021, most major U.S. apartment markets have experienced a rebound in multifamily absorption, vacancy rates, and rent growth. However, the extent of the rebound and its near- and long-term trajectory varies significantly by region, state, and metro area. Using a proprietary data model developed by CONTI, we have analyzed and ranked the top 10 U.S. apartment markets according to six primary factors, which themselves are composed of dozens of individual indicators that signify market strength or weakness. These factors are broadly classified as follows:

  1. Housing Supply & Affordability
  2. Demographics
  3. Labor Market Durability
  4. Risk & Reward
  5. Quality of Life
  6. Fiscal Health

The top 10 apartment markets for investment in 2022 derived from the CONTI INDEX are as follows:

Austin, Texas

1) Austin, Texas

CONTI Index Insights
Austin is one of the fastest growing large metros in the country thanks to major corporate relocations and organic tech growth. With the second most compelling demographics of the top 50 markets, Austin is home to an enormous number of “prime renters” thanks to the tech ecosystem and the presence of UT Austin. Austin has experienced strong long, medium-, and short-term job growth as the market’s large, stable government sector compensates for a sometimes-volatile tech sector. The pace of corporate relocations and expansions has accelerated in recent months while the single-family home market has only become more expensive. Austin will benefit from a lack of supply and an accretive imbalance of net migration/job growth.

Atlanta, Georgia

2) Atlanta, Georgia

CONTI Index Insights
Atlanta’s multifamily fundamentals turned a corner during the last economic cycle and the market’s momentum places it easily in our top 10 investment markets for 2022. Atlanta has had one of the top performing labor markets over the past 20 years thanks to its growing financial technology (FinTech) cluster, which provides the explosive growth of tech with the stability of financial services. As with many other Sun Belt markets, Atlanta’s lower costs of living and doing business means that employers can access a high-quality labor pool at a lower cost. The metro’s multifamily inventory growth rate consistently lags job and household formation growth. Compared to similarly sized Sun Belt markets (e.g., Dallas, Houston), Atlanta has not seen a comparable increase in new supply relative to existing inventory over the past several years.

San Antonio, Texas

3) San Antonio, Texas

CONTI Index Insights
The seventh largest city in the U.S., San Antonio’s rapid population and household formation growth against insufficient housing production has accelerated our interest in this formerly underrated market. Despite an “easy-to-built” reputation, job growth, and household formations have consistently outpaced single- and multi-family permitting and completion levels. The ratio of median home prices to median incomes is growing at one of the fastest rates in the country. San Antonio’s local economy is notable for its stability and insulation from national downturns thanks to government/military and health care employment. As a “responsive” development market, San Antonio rarely experiences a supply glut. Absorption of multifamily units over the past year has exceeded that of many major, primary markets in the U.S. Vacancy compression and surging rental growth rates have resulted.

Dallas, Texas

4) Dallas, Texas

CONTI Index Insights
Dallas has the single most compelling demographic and labor market profile among our top 50 markets. The metro also benefits from stellar property market fundamentals tied to corporate relocations and in-migration to the area. Dallas is home to the second-largest number of prime renters and the largest number of working-age adults in the entire country. Household formation growth accelerated during the most recent economic cycle and in-migration easily surpassed all other metros in our top 50 list. The Dallas labor market tends to outperform during economic downturns thanks to an economy that has diversified markedly over the past 20 years, which can be seen in the wide variety of firms moving to Dallas, ranging from Charles Schwab, AECOM, Xcelerate Auto, Bestow, and many others.

Nashville, Tennessee

5) Nashville, Tennessee

CONTI Index Insights
Labor market strength and demographic growth places Nashville in our top 5 markets for 2022. The labor market has experienced robust and steady growth over the past 20 years, benefiting from a high rate of labor force participation, a diverse industrial mix and a highly-skilled workforce, which has drawn major corporations to Nashville including Amazon. Nashville’s demographic profile is very favorable for multifamily investment thanks to a high level and growing share of prime renters. There is also significant momentum in household formation rates, average disposable incomes and net migration to the metro. Nashville’s cultural amenities and leisure/tourism sector will continue to attract new residents and firms to the market. Property fundamentals are characterized by high demand across both urban and suburban submarkets.

Charlotte, North Carolina

6) Charlotte, North Carolina

CONTI Index Insights
Well above-average growth in the prime-renter age cohort makes Charlotte an attractive market when considered against the persistent undersupply of housing. Over the past 20 years, Charlotte ranked 5th (out of 50 markets) for prime-renter growth and is ranked 1st for growth in this age group over the next five years. Household formation rates are also growing along with net migration to the metro. Attracting (younger) residents to Charlotte is the market’s growing financial services industry as well as the low costs of living and doing business. Although new supply of multifamily units is accelerating, there remains a severe undersupply in the premier suburbs where rent growth is outperforming. Charlotte’s relative multifamily affordability compares favorably with competing high-growth markets like Atlanta, Austin, and Nashville.

Raleigh, North Carolina

7) Raleigh, North Carolina

CONTI Index Insights
On a risk vs. reward basis, Raleigh is the market leader thanks to superb short-, medium-, and long-term property market performance. Raleigh is the second-best market for forecast NOI growth. Multifamily cash flow volatility is very low and risk-adjusted IRR is exceptionally high. Raleigh’s long-term growth trajectory is boosted by thriving tech and life sciences clusters, which continues to attract cutting-edge firms and high-skilled labor to the market. With a lower cost of living relative to coastal tech markets, we expect Raleigh to remain a magnet for our prime renter cohort. As in our other top Sun Belt markets, the current trajectory of supply additions in Raleigh is insufficient to meet demand levels—which suggests several more years of above-average revenue growth.

Orlando, Florida

8) Orlando, Florida

CONTI Index Insights
Strong demographic growth drivers and a high Quality-of-Life score make Orlando one of two Florida markets to appear on our list for 2022. Over the past 20 years, Orlando has been one of the top markets for prime renter and household formation growth rates, as well as net-migration. The population base skews young and is comprised of a high share of foreign-born residents who tend to rent apartments at a higher rate than native-born residents. As a result of these multifamily-friendly demand drivers, average rental growth rates in Orlando have consistently exceeded the U.S. average. The multifamily construction pipeline is showing signs of a contraction just as demand growth begins to accelerate. This will provide Orlando at least another few years of outsized rent and occupancy gains.

Tampa, Florida

9) Tampa, Florida

CONTI Index Insights
Tampa is one of our top up-and-coming markets thanks primarily to its score on our Risk-Reward Index where it sits second only behind Raleigh. Rent growth averaged 2.3% per year over the past 20 years and 3.3% during the previous economic cycle, placing the market easily within the top 10 of our top 50 markets for rent growth. With strong rent growth and healthy occupancy rates, Tampa has one of the strongest revenue growth rates in the country. In the post-COVID period, Tampa is experiencing extraordinary demand growth and vacancy rate compression in the face of an enormous increase in new supply. Despite being a relatively affordable single-family market, construction of for-own housing has not kept pace with demand, funneling more and more people into rentership.

Phoenix, Arizona

10) Phoenix, Arizona

CONTI Index Insights
Phoenix boasts a favorable combination of strong demographics, a durable labor market, and a positive risk-reward profile. The number of prime renters, which was already growing rapidly prior to the COVID crisis, will continue to climb in the metro well into the forecast period—both in raw numbers and as a share of the total population. Phoenix ranks third in our market selection index for net migration to the metro. Employment growth is characterized by high momentum and low volatility. Property fundamentals in Phoenix were very robust during the last economic growth cycle, with rent growth easily topping the list of our top 50 markets. This strength translated into strong NOI growth and a significant reduction in cash flow volatility compared to Phoenix’s long-term average.

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About the Report

Louis Rosenthal

Louis Rosenthal
Director, Research & Analytics

This report was developed by CONTI’s in-house Research department, led by Louis Rosenthal. Using our proprietary data model, the CONTI Index, we are able to analyze and prioritize data in a way that provides us with the relevant information so that we can make confident and informed decisions.

The CONTI Index reviews metropolitan areas according to six primary factors, each of which include dozens of individual indicators that signify market strength or weakness.

About CONTI Capital

CONTI Capital is a leading real estate investment company, investing capital on behalf of individuals, wealth managers, and institutions. Our mission is to create outstanding value for our investors through an active stewardship of their capital. We provide capital solutions to acquire, manage, and sponsor real estate investments across the U.S. Our efforts are backed by years of industry experience, strong company culture, and a relentless drive to perform.

To learn more about investment opportunities please email investorsupport@conticapital.com.