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Multifamily Capital Markets Report

3Q19 UNITED STATES MULTIFAMILY CAPITAL MARKETS REPORT

November 2019
 
Newmark Knight Frank presents the Third Quarter 2019 United States Multifamily Capital Markets Report. The statistics and in-depth market perspective contained in the report illustrate current multifamily trends.

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Executive Overview

Sales Volume Sales volume in the third quarter totaled $46.0 billion, down 7.3% year over year, while 12-month sales volume increased 8.8% to $183.7 billion nationally. Non-major markets have been the recipient of 70.0% of total investment sales volume over the past year, with Sunbelt markets such as Charlotte, Tampa and Raleigh-Durham all exceeding 30.0% annual volume growth.
Cap Rates Yields compressed 9 basis points year over year to 5.34% nationally, while cap rates expanded 5 basis points in major markets and compressed 12 basis points in non-major markets. Cap rates have remained steady despite a 32-basis-point quarter-over-quarter decline in the 10-year treasury market to 1.68%, the lowest level since the third quarter of 2016.
Rent Growth Annual effective rental growth increased to 3.2% nationally, up 60 basis points year over year. Las Vegas and Phoenix remain the top markets for effective rental growth year over year at 8.0%. This marks the third consecutive quarter in which these two Southwest markets have led the nation. Strong property level rental growth has also contributed to net operating income accelerating to 6.83%, up 255 basis points year over year.
Supply and Demand Year to date, new supply has totaled 189,753 units, while demand has reached 295,738 units, outpacing new supply by 105,985 units. Despite high levels of new supply nationally, 61.1% of new deliveries over the past 12 months have been delivered in the top 20 markets. Charlotte and Dallas have experienced the strongest inventory growth on a percentage basis, whereas demand has been especially strong in New York, with demand outpacing new supply by 10,329 units.
International Capital Direct acquisitions by international capital sources totaled $17.1 billion over the past 12 months, representing a 44.1% increase year over year. Canada remains the top buyer of U.S. multifamily, accounting for 65.1% of acquisitions by international capital sources, led by Brookfield Asset Management. Additionally, international investors have continued to shift money out of major markets and into non-major markets with higher growth potential.
Debt Markets Mortgage debt outstanding for multifamily grew $24.4 billion to $1.5 trillion, a 1.7% quarter-over-quarter increase. The four major lenders (GSEs, banks and thrifts, life insurance companies and CMBS) all increased their holdings quarter over quarter, as debt capital remains resilient. FHFA's recent announcement allowing Fannie Mae and Freddie Mac to produce $200 billion over the next five quarters is expected to sustain the debt market for the foreseeable future.

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