Apartment sales rose 18% from a year ago to $11B in October, buoyed by growing investor confidence that a nascent multifamily recovery is taking shape.
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Asset prices have fallen 6.1% in the last 12 months, but they dipped only 0.3% since September as capitalization rates across multifamily asset types ticked up between 20 and 30 basis points from the start of the year, according to an MSCI report.
The increase in transaction volume without much movement in cap rates signals that investors are becoming increasingly confident trading assets at today’s valuations, although some buyers remain on the sidelines waiting for distressed deals.
Sales of towers and mid-rise apartment buildings grew the most, up 38% year-over-year to $4.7B in the third quarter, while sales of garden-style properties grew 7% annually to $6.4B in Q3 sales.
The boost in sales volume was driven by portfolio sales, up 159% year-over-year to $2.1B in October, according to MSCI. Individual property transactions were up a more modest 5% but still totaled $9B.
Total volume in October was still 35% below the five-year average for a prepandemic October.
Demand has leaped in some cities as investors determine apartments are a strong asset type amid the Federal Reserve’s easing of monetary policy, a wave of pandemic-era construction is absorbed, and new development starts remain limited.
In Boston, multifamily sales totaled $1.4B in the third quarter, the highest level since mid-2022, driven by a wave of out-of-state investors attracted by the region’s strong fundamentals and limited development pipeline.
“Every investor that we're talking to wants to be in a place like Boston or Greater Boston just given the cycle-resistant demand drivers,” Berkadia Managing Director Adam Dunn, who recently brokered a $102M sale in the city, told Bisnow last month.
Washington, D.C., has seen a similar surge in apartment sales, with more than 3,000 units trading over the last three months. The $5.6B in transaction volume through the third quarter was up from $3.7B in all of 2023, according to CBRE. Martha Hastings, executive vice president in the firm's local office, told Bisnow this month that at least another $4.5B in deals were under contract, awarded, headed to or on the market.
Many investors retreated from multifamily after a wave of pandemic-era development raised questions about oversupply and future rent growth in some cities. But the rapid increase in interest rates that began in March 2022 curtailed lending in the space, and new starts plummeted.
Despite the wave of new inventory beginning to deliver, apartment vacancy dipped to 5.3% in Q3, according to CBRE, the first drop in vacancy in more than two years.
While rent growth has stagnated, investors expect to see strong gains after the pandemic-era construction projects are completed because of the limited pipeline of new projects coming behind them.
Construction starts on multifamily units fell 9.4% in October to a four-month low, Bloomberg reported.
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