Strong market fundamentals, an abundance of capital, and an influx of investors continue to propel the U.S. multifamily investment market, according to Real Capital Markets’ 2018 Multifamily Investor Sentiment Report.
The majority of investors surveyed by Real Capital Markets are in a buying mode, with many finding a shortage of quality assets, particularly in the value-add category. Experts interviewed by Real Capital Markets in July 2018 noted that underlying fundamentals shaping rental demand continue to draw a wide range of investors into the U.S. multifamily sector, despite upward movement in interest rates.
“Overall, the commercial real estate market—and particularly the multifamily sector—remains strong, with significant capital, both domestic and foreign, looking to be placed,” said Tina Lichens, COO, Real Capital Markets. “The challenge for many investors is finding quality assets at reasonable prices.
Statistics on rents per square foot, cap rates, sales prices and unit completions, aggregated by the National Multifamily Housing Council demonstrate the continued strength of the multifamily sector. Moreover, mid-year sales statistics reported by Real Capital Analytics showing $69.8 billion in mid-year multifamily sales underscore the findings of the RCM Report.
RCM surveyed its U.S. database of multifamily investors and conducted follow-up interviews to gauge investor sentiment on various topics.
Highlights of the Multifamily Investor Sentiment Report include:
• Market thrives with capital chasing deals — according to experts interviewed for the report, there is at least $250 billion in capital already committed to commercial real estate, with much of it likely focused on the multifamily sector. This capital is coming from a range of investors including institutions, private equity, REITS, as well as private and public funds. The product types they are chasing most include garden and suburban style apartments, followed by urban style apartments.
• Interest rates are a looming threat — most industry experts interviewed, and 69.7 percent of survey participants, ranked interest rates as a looming concern, as the market has already absorbed 12 to 18 months of increases and spreads are very thin. The consensus is that further rate hikes will be difficult for lenders to absorb. This increased cost may cause investors to modify strategies.
• Value-add remains hot, but elusive — approximately 58 percent of Investors are looking for 1970s and 80s rental properties that need upgrades but are finding fierce competition and an upward tick in pricing.
• Job growth is driving multifamily activity — in many core and secondary markets across the country, strong employment, often from the tech sector, is fueling growth in the multifamily sector.
• Fundamentals look strong — with national and individual market vacancy rates fluctuating as new supply is brought online, more than half the survey participants believe that further increases in vacancy rates are likely, but the level of increase will be only marginal. Nearly 65 percent believe that rents will increase at least marginally. Given these factors, while almost one third of investors see a slight slowing of the market, approximately 66 percent of investors believe the market will maintain at current levels and remain strong.
“Housing is one of the most fundamental needs, regardless of income level or socio-economic status,” said Steve Shanahan, Executive Managing Director, Real Capital Markets. “Investors will continue to leverage those intrinsic needs, as well as strong market fundamentals, to create and take advantage of a steady stream of investment opportunities.”