2022 was a complex year for commercial real estate, as rising interest rates created an air of uncertainty in the market, resulting in a deceleration of transaction activity. Despite these headwinds, multifamily fundamentals ended last year on firm footing and Metro Phoenix is currently among the Top 10 markets for multifamily investment in 2023. However, individual asset performance varies widely depending on location.
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CONTI Capital uses our proprietary location analysis technology platform, the CONTI Index, to guide our acquisitions efforts in identifying the ideal locations for multifamily investments. The data model combines over 400 indicators across six primary sub-indexes to pinpoint specific areas, down to the zip code level, where indicators demonstrate properties are likely to outperform in the next three to five years. The data we examine is granular economic, demographic and property performance data, which allows us to track shifts in the top 50 markets as they occur.
In what follows, we present our Top 10 Multifamily Investment Markets for the first half of 2023. However, because markets themselves are large aggregations of multiple municipalities and neighborhoods, our approach to site selection drills down within each market to the zip code level.
Top 10 markets for multifamily investment in 2023
[A Note on Methodology: The top 10 market rankings are informed by each market’s performance across the various indicators we deem to be the most relevant for our investment strategy in the first half of 2023. The data used to develop the rankings is derived from a number of government and third-party data sources. Unless otherwise noted, any references to scores, ranks or specific values derive from CONTI’s proprietary modeling of the data from the above-mentioned sources].
1. Dallas-Fort Worth, Texas
The Dallas-Fort Worth Metroplex is once again CONTI’s #1 market for multifamily investment in 2023 chiefly because of the market’s ranking across our Demographic Destiny and Labor Market Durability subindexes. DFW shines in terms of total employment, office-using employment and labor force participation, key ingredients for a thriving multifamily market considering the high correlation between labor force performance and apartment demand.
Over the past year, DFW has consistently outperformed the top 50 markets in job growth across most major employment sectors and aggregations, including health and education, FIRE (finance, insurance, real estate), TAMI (technology, advertising, media, information) and professional and business services generally. As a result, DFW is our top market in the Super Sector Correlation subindex, which measures the degree to which the employment mix in a given market is correlated with apartment demand. In addition, DFW has a high rate of labor force participation. Taken together, the Super Sector Correlation and participation metrics speak to the structural strength of the DFW economy and its long-term development trajectory. It also speaks to the diversification and resilience of DFW, since the market is not overly exposed to any one industry.
On the demographics side, DFW outperforms the top 50 markets in how we measure total population, net migration and household formation. Over the past ten years, DFW has been the single best market for total population growth, with the sheer number of people living in the market increasing by about 122,000 per year, thanks in part to a steady stream of corporate relocations stoking further in-migration. While we expect the pace of corporate and individual in-migration to moderate somewhat over the next few years, the organic growth of companies and the local population will be sufficient to drive DFW multifamily to new heights.
2. Atlanta, Georgia
Atlanta’s strength as a multifamily market resides primarily in its demographics, with one of the highest proportions of “prime renters” within the 50 major metros we measure. This segment of young adults is plentiful and growing in Atlanta, both percentage-wise and in sheer numbers. In 2022 alone, the prime renter cohort in Atlanta expanded by 10,400 people, or 2.3%. By comparison, total population growth in Atlanta amounted to 1.2% over the past year, indicating that young adults are growing at a faster rate than the overall population. Looking forward, we expect this demographic trend to continue at least into the short term, meaning young workers will continue to form households at an above-average rate, generating outsized rental housing demand in The Big Peach through our outlook period.
It’s no surprise that young adults gravitate towards Atlanta, given the market’s ample employment opportunities and concentration of educational institutions. Atlanta is home to Emory University, which boasts a large business school, and other prominent institutions like the Georgia Institute of Technology and Georgia State University. Major employers are drawn to Atlanta’s business-friendly environment, which stems from low corporate tax rates and the presence of an international airport hub. Home to seventeen Fortune 500 firms and a growing tech cluster—including Microsoft, Google, Apple, Visa and Cisco.
3. Austin, Texas
Despite the slew of negative headlines in recent months, Austin remains in our top 5 multifamily investment markets for 2023 due to a number of long-term demand drivers that easily trump the short-term news cycle. In our view, the narrative around Austin has shifted simply because of the outsized growth the market has experienced over the past ten years—especially within the past three years. What goes up, must come down—or so the thinking goes. From our perspective, however, this thinking misses the structural shift that has occurred in Austin’s economy over the last decade.
The Texas capital has managed to draw in a remarkable number of tech companies to the area, creating a bona fide high-tech cluster colloquially known as “Silicon Hills.” Anchoring this tech cluster are firms like Oracle, Apple, Tesla and Samsung. Austin’s tech scene differs from its coastal peers due to the higher concentration of high-tech manufacturing and research and development jobs in the market. As we have previously shown, high-tech manufacturing is far less volatile and far more conducive to long-term economic development than other tech jobs.
Despite concerns about layoffs in the technology sector, Austin’s overall unemployment rate remains extremely low at 2.8%. What’s more, the market’s labor force participation trends are also highly favorable, which speaks to the structural strength of the local economy. While we expect an increase in unemployment in Austin over the next year as the U.S. economy continues to slow, Austin has a uniquely resilient labor force thanks to the concentration of government employment tied to the state capital and the University of Texas. Furthermore, UT Austin contributes to the population of young adults with high educational attainment living in the metro. This is why we are particularly bullish on demand for Class A multifamily in Austin.
4. Charlotte, North Carolina
Charlotte is bolstered by its job market, and the cluster of big finance companies that propped up Charlotte’s economy during the pandemic-related economic downturn in 2020. Three large national banks – Bank of America, Wells Fargo, and Truist – are headquartered in Charlotte, supporting thousands of jobs and drawing further migration to the area. We are drawn to markets with thriving finance clusters because, according to our modeling, financial services employment is highly correlated with apartment demand. Moreover, Charlotte is notable for its growing financial technology (Fintech) industry within the broader finance sector. In fact, a leading technology think tank recently named Charlotte as one of the top ten fintech “ecosystem” markets in the entire world1. This puts Charlotte on the map alongside major global fintech markets like Zurich, Stockholm and Dublin, to name a few.
Residents in Charlotte also enjoy a high quality of life, according to how our Index uniquely conceptualizes this factor, especially when it comes to the metro’s fiscal health. The state and municipal governments have their budgets in order. According to Truth in Accounting’s most recent “Financial State of the Cities” report, Charlotte had a significant budget surplus in 20202. We see this as a good sign for Charlotte’s long-term health as a market, as it allows municipalities to make far-reaching investments in the area’s productive capacity. Given this metro’s quality of life score and above-average job projections, it’s not surprising that Charlotte enjoys the third highest rank across our multiple measures of net migration. A significant share of this net migration consists of our target “prime renter” age cohort.
5. Orlando, Florida
Orlando really shines when it comes to our measures of quality of life, thanks to a strong emphasis on arts and entertainment (e.g., world-famous theme parks), a generally pleasant climate and a relatively low cost of living. In 2022, the arts and entertainment component of Orlando’s GDP exceeded that of every other metro in the top 50 markets we track, including Las Vegas, Los Angeles and New York City. Although Orlando’s leisure and hospitality employment sector struggled under pandemic restrictions, the near-to-medium-term outlook for tourism-related job growth in the market is exceptional due to post-pandemic rebound growth and sustained wage gains for a vast swath of American consumers.
Though tourism and hospitality are still huge contributors to Orlando’s economy and job market, the city has seen growth in the professional services, healthcare, technology and aerospace/defense industries. In fact, Orlando is one of our top markets for momentum in office-using job growth. As we look to market-level performance for our typical hold period, we are particularly attentive to these momentum measures as they indicate the extent to which markets will outperform their own historical norm. In our view, a market characterized by high growth in leisure-related and office-using employment categories is ideal for investments in both the Class A and Class B segments of the multifamily market.
6. Tampa, Florida
Like Orlando, Tampa scores well on our measures of quality of life thanks to a warm climate, low cost of living and a thriving labor market. As a result, Tampa is one of our top 5 markets in terms of how we measure net migration. Over the past five years, Tampa saw over 181,000 people move to the metro, representing 5.6% of Tampa’s total population. Only three other markets experienced a superior rate of net migration as a share of the existing population during that same period: Austin, Raleigh-Durham and Jacksonville.
With an ultra-low unemployment rate of 2.6% as of November 2022, Tampa’s economy features an unusually high dispersion of employment opportunities ranging from education to finance to high-tech. In fact, CBRE named Tampa as one of its “Next 10 Tech Markets to Watch” in 20223, highlighting the metro’s growing share of tech employment and its impact on the local office market. Given the connection between employment and multifamily performance, it is no surprise that Tampa was the second-best market for rent and revenue growth over the past three years.
7. Houston, Texas
Texas’ second-largest metro has become, in our view, an underrated multifamily market, too easily dismissed for its dependence on the notoriously volatile oil and gas industry. Although extraction industries continue to have an outsized presence in Houston, the market has diversified remarkably over the past decade. Using a modified version of the Hachman Index that measures industrial diversity, Houston has diversified the most across the top 50 markets we track over the past 5 and 10 years. While oil and gas remain a core driver of Houston’s economy, the market is also seeing robust growth in sectors like technology and health care.
Houston is also one of the highest-ranked markets in our demographic sub-index, as a significant millennial population calls Houston home. In particular, this metro demonstrates a high rate of household formation – that is, a high proportion of households compared to the general population, which could stem from adult children moving out of their parents’ homes, roommates getting their own places, or simply a shift in age distribution4. Household formation is a core driver of demand for rental housing. Over 34,000 new households were formed in Houston in the past year, the second-best market for household formation in our top 50 markets, behind only New York City.
8. Nashville, Tennessee
Nashville boasts the highest Labor Market Durability score of all the markets we track. Core to this labor market outperformance are the structural elements of Nashville’s economy, namely a high rate of participation, an industrial mix conducive to apartment demand and resilience during national economic downturns. Several industries have a major presence in Nashville, contributing to the high degree of industrial diversity in the market. This includes education (e.g., Vanderbilt University), technology (e.g., Amazon’s Operation Center of Excellence), finance (e.g., AllianceBernstein) and leisure and hospitality. It is this very diversity that insulates the metro from challenges facing any one industry.
The population profile of Nashville skews young, establishing the market as one of our top performers in how we measure the concentration of prime renters. Nashville was our second-best market for growth in this cohort over the past two years and, looking forward, it is our third-best market for prime renter growth over the next year. These trends speak to the general attractiveness of Nashville to young adults, which is a function of the diverse employment opportunities, the relatively low cost of living and its ample cultural amenities.
9. Raleigh-Durham, North Carolina
Quality of life and labor market performance consistently keep Raleigh-Durham in our top rankings despite the market’s relatively small population. Raleigh has the best fiscal health score and the second-lowest crime rate across the top 50 markets we track. These quality of life elements are particularly attractive to in-migrants from other major metros struggling with high crime rates and fiscal imbalances.
However, the critical ingredient to Raleigh’s status as a top secondary market is the area’s exposure to tech and education. The metro area is home to the “Research Triangle,” which consists of major research universities (Duke, North Carolina State and UNC) and hundreds of tech firms that draw from this STEM talent pipeline. Unlike some major coastal tech markets, Raleigh’s tech industry is notable for its specializations in life science and advanced manufacturing. The talent pool in this market is highly educated, well-compensated and a core driver of Raleigh’s robust apartment fundamentals.
10. Phoenix, Arizona
Phoenix is another market that we believe has been unfairly tarnished in recent reporting related to the local housing market. As we have consistently made clear, market-level trends can often obscure submarket and micro-market trends that are far more relevant to specific investment opportunities. To write off the market as a whole due to a decelerating housing situation would be to ignore the immense opportunities still available in a region characterized by rapid population and employment growth.
It is a misconception that Phoenix’s growth story is wholly tied to pandemic-related factors, namely the outmigration of people from California and other major metros seeking lower home prices. While these trends have no doubt supercharged growth in Phoenix since 2020, the swell of migration goes back even further. Over 277,000 people have moved to Phoenix over the past five years, the second-best market for the sheer number of in-migrants across the 50 markets we track. Phoenix is a desirable place to live due to its sunny climate and numerous outdoor diversions, but also for its ample job opportunities. From the 33 different ways we measure total employment trends, Phoenix is the single best market in our Index for overall employment.
