As the multifamily sector experiences lowering and stagnant cap rates for the past five years, single-family residential investment becomes more attractive to investors.
For years, apartment experts predicted that yields on investments in apartment rental properties would rise. Years passed, but cap rates in the sector remain historically low, and are getting lower.
“Cap rates have not risen in the last five years,” says Chris Espenshade, managing director with real estate services firm JLL. “Why should we expect they would rise in the next five?”
New investors keep finding reasons to buy apartment properties, and prices for these assets keep rising. That strong demand from buyers seems likely to keep cap rates low.
“New investors are coming in at a rate that I have never seen before,” says Brian McAuliffe, president of CBRE Capital Markets. “The multifamily investment market continues to be very active.”
Investors continue to pay higher and higher prices for apartment properties, though prices are not growing as quickly as they once did.
“Prices are still increasing… just at a slower pace,” says Will Mathews, managing director and platform leader of the east region multifamily advisory group with real estate services firm Colliers International.
Prices for apartment properties grew by 8.8 percent over the 12 months that ended in May 2019, according the Commercial Property Price Index (CPPI) tracked by real estate research firm Real Capital Analytics (RCA). That’s a lot faster than inflation. It’s also faster than the 7.2 percent rate of growth for commercial properties overall over the same period. But it’s below the 12.8 percent rate of growth recorded for apartment properties over the same period the year before.
Contact Jeff Cline at SVN | SFRhub Advisors
SVN | SFRhub Advisors
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Phoenix, AZ 85016