Apartment Investment Darlings

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Apartment buildings continue to be the commercial real estate investment darlings in 2011, causing the multi-family sales volume to leap nearly 80% in Q-2, over the same period last year. The average per-unit price reached $88,500 — the highest since the third quarter of 2008, according to CoStar.

Strong renter demand generated by former homeowners and a growing number of young households continues to push down vacancy rates and drive up rents. As cap rates for existing properties have compressed below 7% on average, particularly in coastal and distressed markets, multifamily developers have responded by ramping up development.

CoStar forecasts total supply additions of only 30,000 units in the 54 largest markets in 2011, just one-third of the pre-recession average of apartment delivered between 2003 and 2008. However, with more than 70,000 multi-family construction starts in the first two quarters of 2011, more supply should become available in the next 2-3 years, which could have some minor impact on vacancy rates, rents and cap rates.

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