Busy Q1 for Multifamily: Continual Rent Growths

2021 was a record year for the sales volume of multifamily assets. The deal volume is continuing early in 2022. According to CBRE Capital Markets experts, the average rent paid by residents in the United States increased by a stunning 13% last year. This level of rent increase compensated for any investor hesitancy induced by the epidemic or the greatest rate of inflation in over 40 years.

Following a record year for multifamily investment sales in 2021, early signs suggest that deal volume continued to flow throughout a busy first quarter of 2022.

According to CBRE Capital Markets experts, the average rent paid by residents in the United States increased by a stunning 13% last year. Despite the epidemic or the greatest inflation rate in over 40 years, this level of rent increase compensated for any investor hesitation.

In 2022, investors will have even more reason to be concerned about inflation, but rents are expected to continue to rise as well. With rising single-family rates and a shortage of homes causing pressure multifamily is poised to continue to show growth. The demand for rental housing in the U.S. remains very strong in the first quarter of 2022. And investors seem grateful to have a safe haven from economic uncertainty as they paid high prices—and accepted low investment yields—for apartment properties.

According to Real Capital Analytics (RCA), a data firm based in New York City, investors of all types spent more than they had ever spent on apartment properties in 2021, totaling $335.3 billion. That’s more than double what they spent in the first year of the epidemic, 2020. Additionally, they spent a lot more money during the years leading up to the epidemic when they broke records but never spent more than $200 billion in a single year.

Many of these transactions were made possible by the tremendous rise in residential rentals. According to JLL, effective apartment rentals in the United States increased by about 14% on average in 2021, as suburban rents continued to grow rapidly… In rebounding downtown submarkets that had been harmed by the coronavirus outbreak, rent concessions also burnt off.

Developers plan to build 300,000 additional units, up from an annual average of approximately 200,000 since 2010. However, increasing residential demand is projected to absorb the new units.

One interesting chart posted on Twitter this last week breaks down the 10-year treasury. We have seen an increase in rates, but historically notable events cause rates to continue to lower. See below.

Here is another interesting stat from the 2000s about rates that are worth keeping eyes on related to the same type of increases and potential decreases.

We remain optimistic. The government has zero room to continue raising rates and holding rates high long term. I would suspect by the end of 2023 we will see rates drop back down to a level on trend with the last 50 years. Remember multifamily as an asset operates on NOI and not comp’s of recent local sales

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