In the face of rising home prices and record-level interest rates, more people are turning to apartment rentals. Deliveries and absorption have been on the upswing (with rent growth a mixed bag). However, trends in investment and operational sides are different.
Newmark’s Q2 2023 United States Multifamily Capital Markets Report reveals an increase in operational expenses while loan origination volumes and acquisition activity have declined year-over-year.
Operational Expenses Rise Sharply
Multifamily expenses increased 8.3% year over year due to hikes in insurance costs by 28.6%, according to Newmark analysts’ findings. Insurance growth was nearly 30%, with other operational expenses (management fees etc.) increasing by double digits – putting pressure on operations as a result of higher costs incurred for running multifamily properties successfully .
Investment Sales Decline Continues
It is no secret that investment sales across all asset classes continue declining; Newmark reports that multifamily sales volume dropped 71.8% since last year due primarily to price dislocation between buyers & sellers combined with increasing interest rates . Furthermore, origination volumes have declined since March 2022; “Activity recovered from an especially weak January-February 2023” but has remained range bound ever since , according to report findings . In addition , current economic volatility has caused largest expansion in transaction cap rates for $75 million+ deals compared against smaller ones .
Lower Originations Volumes Reported
Newmark reported that debt originations fell 58% YoY during first half of 2023 – quoting RCA data which noted these were lowest levels seen since 2014 & remain consistently below pre pandemic levels too ; GSE share of multifamily finance grew sharply this period trending well above bank/insurance/CMBS lending sources as well . Other notable trends include: dry powder at closed end funds increased 11 % YTD likely attributed towards record fundraising by opportunistic funds during Q2 2023 ; returns broadly negative though improved marginally with low rise / garden apartments outperforming high rise properties overall
