U.S. Multifamily Investment Enjoys Record-Breaking Year, Top $106 Billion

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Based on the latest research from CBRE; propensity to rent, improving job economy and new development deliveries in the U.S. combined to drive the largest full-year multifamily investment total since 2007.

Total investment volume in U.S. multifamily properties totaled $106 billion in 2014, a 7 percent climb over the prior year and surpassing the prior peak of $105.1 billion set in 2007. Multifamily is the first property sector to return to 2007 sales levels with this milestone.

The year closed with a very active quarter for multifamily property investment, in terms of sales volume. In Q4 2014, U.S. multifamily sales volume reached $34.1 billion--10 percent higher than the year prior--setting a new quarterly investment record.

Investment in mid/high-rise property sales represented 37 percent of all acquisitions in 2014--based on dollar volume--and totaled $39 billion; up two-a-half percent from the prior year. Garden apartment investment rose 6.4% in 2014, to $67 billion. While acquisitions of mid-rise and high-rise properties will remain active, CBRE Research anticipates a modest shift toward garden product in the near term.

"Multifamily investment soared to new heights in 2014. The sector continues to show its resilience as a safe haven for global investors looking to make their way into the U.S. In 2015, we anticipate total investment volume to match or exceed 2014 levels as deployment of capital into real estate from new investor types, in particular, insurance groups from China and Taiwan, and Chinese property companies continues to accelerate," said Brian McAuliffe, Executive Managing Director, Institutional Properties, CBRE Capital Markets.

Aggressive pricing continues to reflect the large amount of capital attracted to the sector, as multifamily investors continue to have a favorable view of this asset class. The Q4 2014 average apartment sales price of $124,000 per unit reflected a 9.6 percent increase over the year prior. Mid/high-rise product recorded a year-over-year gain of 11.2 percent, to $235,000 per unit.

The downward pressure on cap rates also reflects the continued interest in the sector. For all types of apartment properties, cap rates averaged 6.1 percent in Q4 2014--down 10 basis points (bps) from the prior quarter.

Rental demand continued to surge in 2014, as more existing households shifted from owning to renting, and more newly formed households chose to rent apartments over purchasing single family homes. In 2014, 261,700 multifamily units were absorbed nationwide. New York City, Houston, Los Angeles, Dallas and Austin were the year's largest contributors to net absorption, each recording more than 10,000 units of positive net absorption.

"Market trends continue to reflect the multifamily sector's attractiveness for debt and equity capital as pricing metrics point to a sustained competitive environment for investment and higher pricing. GSEs such as Fannie Mae and Freddie Mac remain dominant in the multifamily lending world; life companies, banks and the CMBS market are also competitive sources of mortgage capital. The favorable health of the multifamily sector is also reflected in low and/or declining delinquency rates," said Peter Donovan, Senior Managing Director, Multifamily, CBRE Capital Markets.