When it comes to improvement over the past year, said Nadji, the coastal markets didn’t top the list because supply constraints kept vacancy in those areas relatively low, so they didn’t have the room for movement as the other markets. In 2012, he expects the top markets to be New York City; Portland, OR; Minneapolis; San Jose; and San Francisco, with vacancy ranging from 2.3% to 3.1% in those areas. The bottom markets on his chart included Tampa, FL; Dallas/Ft. Worth; Indianapolis; St. Louis; and Charlotte, NC, with vacancies in the 6.4% to 6.6% range.

When asked about specific markets, JP Morgan Asset Management’s managing director, Jean Anderson, said, “They all surprised us in the first half, but then they all slowed down in the second half.” But the greatest surprises in the second half were parts of Houston, New York City, the New Jersey waterfront, San Francisco and Washington, DC. Rent growth, she added, was disappointing in Atlanta; suburban Raleigh, NC; Kansas City; and the suburban markets of the Southeast.

Sean Breslin, EVP of investments and asset management for AvalonBay, saw upside in San Diego, thanks to its defensive employment sectors and low homeownership rate. He’s less thrilled with Orange County, “the epicenter of the subprime crisis. But I was surprised with the performance of the Inland Empire last year. Despite a beat-up housing market, concessions stabilized and the market saw double-digit effective rent growth.” He also expected New York City to have a difficult time, given the financial industry’s woes, but it’s beat expectations.

On the capital markets side, said Wes Fuller, managing director for Greystar Real Estate Partners, “I’m surprised at the pricing in Florida—the things you can buy at good yields. There’s also good growth in Phoenix and Atlanta, but is the growth sustainable?” Of all the markets, Austin has seen the greatest improvement, he observed; rents there have risen 20% from their 2009 trough. Seattle’s fundamentals have been down, too; he’s “cautiously optimistic” on rent growth there.

Home Properties’ president and CEO, Ed Pettinella, stated, “All boats will rise in 2012. It will be the best year for multifamily.” But some markets will do better than others. On Washington, DC, he said, “I’m not saying we’ve spent all our chips, but a lot of chips have been spent there. There are other markets that will perform better than the coastal markets, where the recovery is well under way already.”

Fuller, too, expects 2012 to be the industry’s best year for rent growth. The wave caused by the drop in the homeownership rate has come and gone, he said, and the market is now driven by growth in key employment sectors—biotech, energy, health, etc. Unlike prior years, growth will not occur in markets dominated by the housing or government sectors, he added.

In 2010 and 2011, absorption in class B and C assets caught up with class A, points out Nadji. “That says a lot about the recovery,” he says. Given that, and given yield spreads and pricing, Nadji asked if this will be the year capital leaves the safety of the core markets to move into class B and C assets and secondary and tertiary markets.

Anderson said JP Morgan is traditionally a core player, but it will do deals outside the box on a selective basis. “There has to be a story to why you’d ‘shake things up,’” she stated.

AvalonBay only operates in coastal, supply-constrained markets that have historically performed better. “We’re at the point in the cycle where people are trading class A assets at or above replacement cost,” Breslin pointed out. Going forward, he expects class A transactions to be mostly on the development side, and investment deals to be more in B and C product.

Pettinella said Home Properties consistently buys B and C product, “but the secret in the sauce is that we stay in the primary markets. Class A is valued at full price now. There are buyers at all levels of the quality spectrum.” There’s something very unique going on in the B market, he added. “There’s better absorption and vacancy figures because the turnover is low; 60% of our residents have never, or have no intention of, owning a home,” and the rest can’t afford the cost of obtaining a mortgage today.

And it’s this renter-by-necessity segment that will keep that market healthy even if the homeownership rate moves up. The for-sale market is starting to pull people out of the renter pool, but it’s mostly renters by choice, and not anywhere near the degree that it did during the housing boom. The speakers agreed that the shift in mentality about ownership is causing more people to remain renters.

The panelists also overwhelmingly concurred that multifamily executives can breathe easy this year since new supply will remain low. It isn’t until 2013 or 2014 that construction pipelines will swell. As Fuller tells it, “We’re not concerned about the first wave of supply, from a macro perspective. Clearly the equity market for new development has pulled back. The question right now is the second and third wave. It depends on the capital markets. My guess is there will be more projects wanting to get built than there will be capital available to build them. The capital markets will keep development in check for the next few years.”