Multifamily Transactions Hit Their Lowest Level Since the Pandemic
Interest rates and economic uncertainty have depressed the level of investment in the asset class.
Whether you tally by total dollar volume or number of physical properties, investment in multifamily has continued to tumble in the first quarter of 2024, according to data from RealPage.
It’s at the lowest level since the second quarter of 2020, the depth of the pandemic. But that also puts it at roughly half the quarterly average of 2019. “Nearly 1,040 apartment properties changed hands at a value of $20.6 billion during 1st quarter 2024, according to MSCI Real Capital Analytics,” they wrote.
Overall dollar sales volume was down 25% from 2023 Q1, while the number of properties was down 26%. “This was well below the 4th quarter 2021 peak, when around 5,400 properties changed hands for more than $166 billion as the result of pent-up demand following the onset of the pandemic,” they noted. “Recent activity was also well below the $42.2 billion quarterly average during the five years leading up to the pandemic (2015-2019).” Before the pandemic, since the first quarter of 2024, the value of quarterly multifamily transactions never fell below $21 billion.
To get some additional perspective, at the peak properties sold for an average of $30.7 million per property. In the first quarter of 2024, they sold for an average of $19.8 million. The average unit price last quarter was $190,184, which was the lowest in three years and down 6.5% from 2023 Q1.
“By comparison, per unit pricing from 2015 to 2019 averaged roughly $151,000,” RealPage wrote. “Meanwhile, cap rates for apartment transactions in 2024’s 1st quarter were up 50 basis points (bps) year-over-year, averaging 5.7%. That was the highest cap rate in nearly eight years. Still, multifamily cap rates during 1st quarter remained the lowest among major property types.”
The analysis of building or unit values, sales volumes, and unit sales fall in line with concerns about multifamily and comments by the Federal Reserve. However, all this omits another dynamic in the property type — construction.
Multifamily construction levels in 2023 hit an all-time high. Expectations of activity in 2024 were that deliveries would be up 50% over that. All that building costs a lot of capital and has created enough volume to affect occupancy rates and rents in competing buildings.
At least some of the descending sales volume seems likely due to a refocus of capital to new buildings.