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Multifamily Capital Markets Report

3Q18 UNITED STATES MULTIFAMILY CAPITAL MARKETS REPORT

November 2018
 
Newmark Knight Frank presents the Third Quarter 2018 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 The third quarter experienced record levels of capital flow with $48.3 billion in sales volume, a 33.7% quarter-over-quarter increase. Large markets such as New York and Los Angeles remain the leading recipients of investment, although several top-tier secondary markets experienced material growth as well.
Cap Rates The U.S. average cap rate compressed to 5.4%, a decrease of six basis points year-over-year. Yields currently average 4.7% in major markets and 5.6% in non-major markets. The continued compression in non-major market stems from the high levels of interest in suburban value-add product.
Rent Growth Annual effective rents were up 2.7%, an increase of seven basis points quarter-over-quarter. Rental growth was strongest in Orlando and Las Vegas, both of which averaged increases of 6.1%, double the national rate. Austin, Charlotte and San Francisco are expected to see significant rental growth over the next twelve months.
Supply and Demand Nationally, 321,529 units have been absorbed in the past 12 months, with 298,567 new units being delivered. Although high levels of new supply have been a theme of this phase of the cycle, demand has outpaced new supply lately and has been particularly strong in Houston, Las Vegas, Los Angeles and Phoenix.
International Capital Direct acquisitions by international capital sources totaled $11.1 billion over the past 12 months. CapitaLand closed on a 3,787-unit, Class B portfolio from Starwood Capital for $835 million in the third quarter, one of the largest conventional multifamily portfolio acquisitions by international capital this year.
Debt Markets Despite a rising rates environment, debt capital for multifamily remains plentiful, as credit spreads compressed to absorb increases in underlying indices. Mortgage debt outstanding grew to $1.3 trillion for a $20.0 billion quarterly increase. Quarter-over-quarter, GSE debt outstanding rose 2.4%, with a 2.2% increase from life insurance companies.

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