Multifamily Investment Hits Record-High $184 Billion in 2019
- U.S. multifamily acquisitions rose by 4.4% last year to $184 billion—the highest volume since Real Capital Analytics began tracking the market in 2005.
- Overall investment was largely driven by single-asset purchases—the best indicator for investment momentum—that reached $145 billion last year, up by 10.3% from 2018.
- Portfolio investment activity, which is more volatile, offset some of those gains, inching up by only 0.4% from 2018.
- 1031 buyers, large institutional investors and emerging capital all drove pricing in 2019.
Figure 1: U.S. Multifamily Acquisitions Volume
Source: CBRE Research, Real Capital Analytics, Q4 2019.
Investment in garden product totaled $118 billion (64% of total multifamily investment) and had a record year for deal volume with acquisitions up 7.5% in 2019. Low vacancy and high rent growth have made garden assets a popular target.
Meanwhile, investment in the mid/high-rise segment edged down by 0.9% year-over-year to $65.3 billion, due in part to below-average rent growth and recent rent regulations that weakened investment activity in New York City.
Investment increased year-over-year in 23 of the largest 30 markets by volume. Boston had the largest increase (73.4%), followed by Seattle (65.5%), Las Vegas (63.4%), Baltimore (47.6%) and Charlotte (30.8%). New York City had the largest decline in 2019 (-35.2%), followed by Chicago (-26.5%) and Houston (-17.1%).
Strong investment volume increased asset pricing in 2019 and further lowered already historically low cap rates. According to preliminary U.S. data from the H2 2019 CBRE U.S. Cap Rate Survey, cap rates for infill properties averaged 5.11%, tightening by a modest 9 basis points (bps) from H1 2019. Suburban cap rates ticked down by 11 bps to 5.37%.
Figure 2: Multifamily Stabilized Cap Rates at Historic Lows
Source: CBRE Research, Q4 2019.
Private buyers were the biggest investors in 2019, mostly looking for value-add opportunities. Acquisitions by private buyers—including 1031 buyers, non-traded REITs, family office and private companies primarily investing their own capital—have been rising since 2009 and represented 63.3% of last year’s multifamily investment total (up from 62.2% in 2018).
Among other groups, REITs were net buyers and accounted for 4.9% of total acquisitions. Foreign investors’ share fell to 6.6% in 2019 from 9.4% in 2018 and they became net sellers for the first time since 2012. Institutional investors accounted for 20.5% of total acquisitions (down from 23.9% in 2018) and also were net sellers last year.
Multifamily properties should remain a favored investment target in 2020. The only drags on investment activity may be not enough product for sale, new government-mandated rent control initiatives and uncertainty over the presidential election. However, market conditions are expected to remain healthy and pricing favorable, especially for sellers.
CBRE Research expects sustained enthusiasm and capital for multifamily investment through 2020, along with deep pools of debt capital to finance buying activity. This landscape should help bring reluctant sellers to the market and keep investment activity at very high levels.
Multifamily cap rates should be broadly stable, with slight compression possible. Investors should not count on significant appreciation returns, but income returns will remain steady. The best opportunities are in suburban markets, smaller metros and metro leaders, including Austin, Atlanta, Phoenix and Boston.