"You also have to remember that with apartments, we are talking about shelter," says Keith Misner, senior managing director in charge of Cushman & Wakefield's national multifamily business. "People need a place to live no matter where the economic cycle is at."
Misner also expects the levels of capital flow activity, which have been healthy in 2003, should continue to be strong in 2004. "In markets such as Florida, Southern California and the Mid-Atlantic region, including Washington, DC, Philadelphia and Delaware, condos are just as viable an option as renting," he points out.
The multifamily market remains a preferred investment sector as national sales volume was expected to be at least 15% higher in 2003 than 2002. Misner says that, because apartments are based on one-year leases, the multifamily owners can adjust to economic conditions faster than owners of other commercial property. With anticipated job growth, a primary demand factor for the demand for apartment units, the apartment sector will continue to see strong investor interest.
"Apartments have come into their own as an investment class over the last three or four years," he offers. "They are certainly a viable investment option in good economic times. Job creation makes apartments more attractive."
One trend Misner expects to see less of is the boom for inexpensive single-family homes. "In many cases, the demand for inexpensive single family homes is driving up prices too fast. Apartments then still make sense for a huge sector of the population." The historically low interest rates of the past few years have kept the value of multifamily market strong, because the low cost of capital has made mortgages less expensive. This trend has also made home ownership less expensive, which has had a negative impact on the multifamily market.
There could be some potential stumbling blocks, however Misner points out. For example, if there is an increase in interest rates, the rate of growth in sales will slow as the underlying cost of capital will increase. And, condo conversion activities and sales have been strong in 2003 because interest rates have made them an attractive alternative to rental apartments.
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