On the heels of record investment sales volume on multifamily properties in 2021, there are early signs that deal volumes continued to flow through the busy first quarter of 2022.
Last year, rents paid for apartments across the US increased by an average of 13 percent, according to economist CBRE Capital Markets. Such fare hikes remove any hesitation by investors due to uncertainties due to the pandemic or the highest rate of inflation in more than 40 years.
In 2022, investors have more reason to worry about inflation, but also expect rents to continue rising. A new war threatens to push rising prices more quickly as Russian oil and Ukrainian grain disappear from world markets.
But demand for rental housing in the US remains very strong in the first quarter of 2022. And investors are grateful for a safe haven from economic uncertainty because they paid higher prices for apartment properties and accepted lower investment yields.
“We still expect 2022 to 2021 to rival that,” says Matt Vance, senior economist at CBRE Econometric Advisors working in the firm’s Chicago offices and head of multi-family research for CBRE.
According to Real Capital Analytics (RCA), a data company based in New York City, investors of all types spent a total of $335.3 billion previously spent to buy apartment properties in 2021. This is more than double what they spent in the first pandemic year 2020. That’s a lot more money than it spent in the years before the pandemic, which set records at the time but never totaled more than $200 billion in any given year.
“Multi-housing ruled as the most liquid asset type in the US at the end of 2021,” says Geraldine Guichardo, director of America Living Research for JLL, who works in the firm’s Chicago offices, adding to the sector’s defensiveness. underlines.”
The incredible rise in apartment rents made many of these deals possible. According to JLL, effective apartment rents in the US increased by an average of about 14 percent in 2021, as suburban rents continued to rise rapidly…
Strong demand for apartments continued in the first quarter of 2022. “We are already seeing strong lease trade-outs, ranging from 15 percent to 25 percent in major metros,” says Guichardo, who expects apartment rents to increase by an average of 10 percent. calendar year 2022.
Rents are likely to continue to rise as hundreds of thousands of new apartments fill the high demand for apartments. According to JLL, the percentage of apartments occupied in 2022 is expected to remain at a high of around 97 per cent in 2021. Developers are expected to open 300,000 new apartments, compared to an average of about 200,000 per year since 2010. But the high demand for apartments is expected to absorb those new apartments.
The rent increase helped investors land deals in 2021—and should continue to help in 2022.
“This was clearly a significant driver for transaction activity and was able to justify higher asset values,” says Brian McAuliffe, president of Multifamily for CBRE Capital Markets, who works in the firm’s Chicago offices. “This benefited sellers and investors, as they were able to put money to work.”
Strong demand for rental apartments attracted investors who pooled capital for investors during the coronavirus pandemic. “There has been a big jump in global savings rates and capital accumulation – the capital wall is set to get even bigger in 2021,” says CBRE’s Vance.
The threat of inflation could attract more investors to spend money to buy apartment properties—as inflation also threatens to disrupt other parts of the global economy. “Multifamily provides considerable inflation hedging … Annual leases allow for faster adjustments than the office area,” Vance says.
Price inflation also threatens to bring higher interest rates, however. Federal officials have already promised to raise their benchmark interest rates, in an effort to slow inflation and cool a warming economy, and long-term interest rates, such as the benchmark yield on Treasury bonds, are already rising. have been
“The rise in interest rates, both fixed rates and short-term variable rates, over the past 30 days has certainly put pressure on transaction activity,” says McAuliffe.
Buyers of apartment properties are trying to adapt to strategies like floating-rate for financial deals to buy buildings.
And even the threat of rising interest rates could help seal at least some deals.
“Sellers can bring the property to market if they think the first half of the year may be better than the second,” says McAuliffe. “They can be price flexible in their eagerness to transact in an environment where interest rates are still low.”
