Where Multifamily Investors Are Seeking Opportunities

January 15, 2019

Where Multifamily Investors Are Seeking Opportunities

January 15, 2019 | Brian Sykes | GlobeSt.com

Over the last three years, a portion of the multifamily investment community has begun to look beyond urban centers like New York, Boston, and San Francisco. It is not that the fundamentals in these markets haven’t held up. If anything, they are continuing to flourish — and the consensus is that whatever oversupply exists is inevitably temporary. Rather, for these investors, the primary markets have become a bit too competitive and too pricy. With cap rates nearing 3 percent, there is precious little room for error. Initially, these investors began looking to markets on the periphery of cities and in the suburbs, especially in areas served by urban and suburban rail systems.

Increasingly, however, a growing group of multifamily investors is now looking farther afield, entertaining transactions in secondary and tertiary markets. As Capital One’s annual RealShare Apartments survey suggests, this trend is likely to continue through 2019.

Investors Spread Out from the Primary Markets

Each fall, Capital One polls industry professionals to elicit their views on the direction of the market. The results for the last three years succinctly summarize this shift in focus from primary markets to secondary and tertiary ones. In 2016, almost half of our survey respondents saw the greatest opportunities going forward in urban markets, but this number dropped in our next two surveys to around 20 percent. During the same period, those seeing the greatest opportunities in secondary and tertiary markets rose from 20 percent to 40 percent.

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