Investors bullish on apartments

Investor confidence in commercial real estate continues to climb to new highs, and real estate investors have a strong preference for buying apartments, according to Marcus & Millichap’s First Quarter 2013 Investor Sentiment Report.

Investors remain solidly in favor of apartments. In fact, sentiment changed little since the third quarter with 55 percent of apartment investors still believing now is the time to buy more, compared to 27 percent who prefer to hold and 17 percent who think it is an ideal time to sell [Figure 2].

Despite the recovery under way in the for-sale housing market, demographics continue to support demand for rental housing. Morever, while the pipeline of new units under construction is growing, fundamentals remain compelling. Apartment vacancies improved a further 70 basis points in 2012 and fell to 4.5 percent, according to Marcus & Millichap. As a result, buyers continue to exhibit a strong appetite for multifamily properties. However, transactions are likely to shift more toward Class B and Class C properties that haven’t had as much rent growth and have higher cap rates. “We are seeing a lot of investors look for B, B- and value-add properties as well as quality assets in secondary markets,” says John Sebree, national director of Marcus & Millichap’s multi-housing division.

Overall, 79 percent of apartment owners expect property values to increase in the coming year, while 19 percent anticipate no change and only 2 percent expect a decline. In addition, apartment investors anticipate a fairly hefty increase of 7.7 percent in values, which remains consistent with the 7.3 percent increase respondents predicted in the previous survey.

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