South Leads US in Multifamily Investment Volumes

Multifamily investment activity has roared back after “a couple of weak quarters” during the pandemic, said Richard Barkham, global chief economist and head of Americas research at CBRE said at the recent GlobeSt.com Multifamily conference in Los Angeles. There are positive trends in every region across the country, and even the big cities, he notes, have rebounded.

In the Western US, apartment rents are up and vacancy rates are down. Cap rates have continued to compress to the mid-4% range in the first half of the year, and Barkham predicts that there is more to come. The cap rate compression has come the most dramatically in suburban markets due to strong inward migration and investment demand, Barkham said that only time will tell if this is a temporary trend or a new normal in apartment demand.

While the Western US has the best metric trends, the Southern markets are leading in investment volumes. Dallas/Ft. Worth and Atlanta specifically were among the most active markets. Dallas alone had $7.7 billion of investment activity in the first half of the year, while Atlanta raked in $6 billion in investment. According to Barkham, the Midwestern markets have the best cap rates, offering better yields than other top emerging markets.

The rebound in investment activity started early. Multifamily investment volume increased by 34% quarter-over-quarter in Q2 to reach $52.7 billion, according to CBRE. To put the activity into perspective, if you subtract fourth-quarter volume—traditionally when most deals are down—second-quarter 2021 posted the highest transaction of any quarter in the last 15 years. This has wildly exceeded expectations for the recovery. In total, apartments accounted for 36.6% of commercial real estate transactions in the first half, making it the top performer.

All of this activity has been supported by bullish capital markets, both on the debt and equity side. There is record liquidity in the market, and multifamily lending volumes are at an all-time high. Debt funds in particular have been highly active in placing capital in the sector; however, Barkham says this could be a warning of future issues. Debt funds have been highly active, but they are new players and they could be getting “out over their skis.”