Multi-family is continuing to lead the commercial real estate market in performance as of late. While last year proved to be a successful year for the multi-family market, investors are currently poised to purchase more multi-family properties this year than the previous year. Overall, markets around the country are continuing to perform at peak levels.
$73 Billion in Multi-Family Properties
According to Jones Lang LaSalle, investors purchased more than $73 billion in multi-family properties during the first three quarters of this year. Moving into the fourth quarter of the year, those numbers should continue to improve, as the fourth quarter is typically the busiest time of the year. This could position 2014 to be a record-breaking year for the multi-family sector. Last year, investors purchased more than $105 billion in multi-family properties. This placed 2013 well ahead of the numbers achieved at the height of the real estate boom. In 2007, investors purchased only $99 billion in multi-family properties.
New York is HOT
Currently, New York ranks at the top of the list for hot multi-family markets this year, followed by Los Angeles, San Francisco, Dallas, Atlanta, Seattle, Houston, Washington, D.C., Phoenix, and Denver. While primary markets remain popular choices, an increasing number of investors are now expanding their horizons as they search for the best opportunities for deals. In many instances, this means expanding into secondary markets. Areas that have witnessed large increases in sales volumes in the multi-family sector include Philadelphia, Orange County, and Portland. Each of those markets has seen their volume double to date this year. Along with an increase in volume, many markets are also now experiencing increases in prices. Cap rates are also currently averaging about 5.8 percent on a national level.
Fleeing the Subarbs
A significant element driving such action from investors is increased demand from tenants who have a desire to flee the suburbs and live closer to urban amenities and work opportunities. In response to such demands, investors have proven eager to take advantage of multi-family offerings. The trajectory for rents has proven to backup such movements by investors. For instance, currently, rents are anticipated to grow at a rate faster than inflation. Rent growth was achieved in all markets this year. The city leading growth in rents was San Francisco, with a growth rate of 6.4 percent this year. Other cities achieving strong gains in rents included Seattle, Denver, Houston, and Nashville. Each of those markets achieved an annual rent growth of at least 4.6 percent.
Around the country, several markets are still in a phase of what has been termed as a rising market, meaning that there is still significant difference in terms of the available rental supply versus demand in many of those markets. Among the rising markets around the country, include Las Vegas, Orlando, Tampa Bay, Jacksonville, and Memphis.
Vacancy Rates Still on the Decline
In many markets, vacancy rates have continued to decline due to the fact that the demand for newer multi-family properties has remained stronger than the new supply of properties that are coming online.