Investing in smaller metros can present several risks. These may include slower economic growth, less demand for apartments due to a smaller population, and potential regulatory changes that could impact investment returns. Additionally, smaller metros may not have the same level of infrastructure and amenities as larger cities, which could affect property values. However, it's important to note that these risks can be mitigated with thorough research and strategic planning.
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Because of slower economic growth in 2022 and 2023, apartment demand in the U.S. is projected at 240,000 units in 2020. Millennials continue to move into homeownership at a modest pace due to affordability issues, but multifamily demand remains sufficient enough. New York Metro's 9.2% year-over-year (YoY) drop in multifamily investment was partly caused by the implementation of new rent control regulations. Greater Los Angeles had a 9.8% drop in investment YoY, but the San Francisco Bay Area had a 7.4% increase. Buying or building in the suburbs remains the best bet based on market performance and investment returns. Investors and developers should consider smaller metros – under 2 million population.
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