Each month Reid Bennett, CCIM of Sperry Van Ness | Chicago | National Council Chair of Multifamily Properties | SVN International, holds a National Multifamily Product Council Call.
Welcome to the First Quarter 2015 National Multifamily Call
So far 2014’s apartment sales momentum has continued through the first quarter of 2015.
In January, multifamily sales hit $9.3 billion which was a 42% increase compared to January 2014.
As sales increased, cap rates continued to fall, dropping 10 basis points to a 6% average in January.
Private investors accounted for 53% of volume which is down a bit from 62% of the market in 2014. In the four previous years, private buyers only secured 51% of the market. Public buyers, who generally don’t want to employ as much leverage as private companies, lost share in 2014—falling to 9% of activity in 2014 versus 20% in 2013. I believe this is a good sign for those on the private client side and it is all positive news moving forward this year on the private investor front.In January, multifamily sales hit $9.3 billion which was a 42% increase compared to January 2014. Click To Tweet
A record setting fourth quarter of 2014 capped the strongest year for multifamily investment since 2007, and multifamily trackers such as Axiometrics and MPF Research expect that deal volume in 2015 will match or exceed that of 2014.
Not surprisingly, multifamily was the first commercial property sector to surpass the previous twelve-month peak.
US apartment sales hit $112 billion in 2014 and this is a 7% increase over the record setting year of 2007 according to Real Capital Analytics. I have been seeing values across the nation averaging up to 13% more than the peak in 2007. This is an important metric to share with sellers in this market now as many are still feeling the sting of deals they bought in 2007 or 2008 and are surprised to hear that values today are exceeding the 2007 peak prices. It might be a good opportunity for many to get off of the fence and list their properties or at least consider offers on them.
Axiometrics states that national annual effective rent growth measured 5.0% last month, its highest level in 44 months. It also represented a gain of 16 basis points on January’s annual effective rent growth.Not surprisingly, multifamily was the first commercial property sector to surpass the previous twelve-month peak. Click To Tweet
According to Axiometrics “The market dynamics from ‘14 are continuing for several reasons. The apartment metrics reflect continued job growth throughout the nation. With 295,000 new jobs added in January and the unemployment rate down to 5.5%, more and more people are out there looking for apartments. This February had a meteorological advantage over the last year even though it might not seem that way for those in the northern part of the country and especially those in Boston with their record snowfall, winter weather in the rest of the nation was nowhere near the ‘snowpocalypse’ of last year. That meant movement and construction proceeded at a normal pace for February.”
Another metric that displayed impressive growth in February was tenant retention rates, also known as renewal conversion rates. Research confirms they reached a 10-year high of 54.5% in March; continuing a five year upward trend. Renewal conversion rates have been climbing since the apartment market recovery started. They surged in early 2010, and have continued to tick upward.
On a YOY basis, renewal conversion jumped 80 bps as of February. The metric has seen a 22-month stretch without negative YOY change.
Jay Parsons, Director of analytics at MPF, calls the low turnover rate “especially impressive given that new apartment supply is plentiful and that rents continue to increase substantially. Brisk leaseup velocity in new apartments combined with low resident turnover at existing properties speaks to the depth of demand for apartments and to the fact that most properties have not hit a ceiling on rents—not yet, anyway.”
The top 5 Multifamily High Yield Investment Markets are all in the Midwest.
Despite posting higher than average cap rates between 8% – 9%, these markets benefit from local economies that are building momentum. This should excite those working in these markets as it is a great story to tell when marketing your deals to the nation.
Trends also continue to focus on the secondary markets as well as class B & C properties across the country.
There were over 260,000 apartment units absorbed in 2014 and the forecasted demand for 2015 is 186,000 units.
Las Vegas will see the highest demand for new housing in 2015 followed by San Bernardino, California, Jacksonville Florida and Phoenix Arizona.
Metros forecasted to have the highest employment growth rates this year include Portland, Oregon, Denver Colorado, Fort Lauderdale, Florida, Austin Texas, Dallas/Fort Worth, Texas. Interestingly, 20% of all ongoing apartment construction this year is in Texas.
Thanks so much for reading my report and I look forward to hearing from you if you are interested in discussing the topic of Multifamily real estate investing!