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Multifamily Apartment Cap Rates

Cap Rates for Multifamily Apartment properties are relatively flat for 2019 in this market. Averaging 4.60 for newer Luxury Metro properties, 4.87 for A Class, 5.24 for B Class, 6.02 for C Class and 6.40 for Value Added Acquisitions.  With the economy adding more jobs and moderate wage increases rents are stable and vacancies are less than 5.00%. The continual increase in single-family home prices throughout 2019 has strengthened the demand for rental units. The volatility of the Stock Market has pushed more investors into US Treasury Bonds and Income Property Investments.  The increase in residential interest rates during the first quarter of 2019 initially increased the demand for rental units.  In June of 2019 interest rates came down significantly, but the demand for multifamily rental units is still increasing.   

 

Multifamily Apartment Cap Rates
Rates as of: 12/14/2019
Description Cap Rate
New Luxury Metro 4.60
A Class 4.87
B Class 5.24
C Class 6.02
Value Added Acquisition 6.40

 

With a stronger economy and the increase in jobs and moderate increase in wages, rents have remained strong on multifamily units but are trending towards being flat in 2018.The increase throughout 2017 in single family home prices have kept more working class families renting.On the flip side there were 1.2 million new homes created out of which 854 bought and 365,000 rented.The millennial’s are favoring renting A and B quality apartment units rather than homeownership. More Seniors are choosing to rent as well.These factors show that demand for rental units will continue to be steady.

Realpage has reported that absorption of existing rental units picked up in the 2nd and 3rd quarters of 2017.Currently there are many multifamily units being added to the market awaiting completion.This is expected to moderately increase vacancy rates. Multifamily permits have slowed in the last 2 quarters of 2017. With the increase of new apartment units the supply is slightly expected to be higher than demand resulting in a slight increase in market vacancy.

U.S. National-Level CAP Rates and Expected Rates of Return by Property Type, Sector, Class and/or Segment

   

Stabilized Property Acquisitions

Value-Add Property Acquisitions
   
CAP Rate
  
AD Over 10-Yr Treasury
Expected Return on Cost 
  
AD Over 10-Yr  Treasury
Property Type
​Sector		 Class/
Segment		 H1 2017
(%)		 H2 2017
(%)		 Change
(bps)		 H1 2017 (%)
EOP 1.49		 H2 2017 (%)
EOP 2.45		 H1 2017
(%)		 H2 2017
(%)		 Change
(bps)		 H1 2017(%)
EOP 1.49		 H@ 2017 (%)
EOP 2.45
Office
CBD		 ALL 6.61 6.63 2 512 418 8.22 8.24 2 673 579
AA 5.19 5.24 5 370 279 - - - - -
A 5.95 5.99 4 446 354 7.12 7.10 -2 563 465
B 6.85 6.84 -1 536 439 8.02 8.03 2 653 558
C 8.61 8.64 3 712 619 9.83 9.8 6 834 744
Office
Suburban		 ALL 7.64 7.76 11 615 531 9.21 9.33 11 772 688
AA 6.20 6.31 11 471 386 - - - - -
A 6.96 7.07 11 547 462 8.06 8.18 12 657 573
B 7.97 8.13 16 648 568 9.20 9.27 7 771 682
C 9.30 9.46 16 781 701 10.45 10.60 15 896 815
 
Industrial
ALL		 ALL 6.72 6,73 1 523 428 7.71 7.74 3 622 573
A 5.48 5.54 5 399 309 6.34 6.41 8 485 396
B 6.59 6.52 -7 510 407 7.53 7.53 0 604 508
C 8.13 8.16 4 644 571 9.31 9.33 3 782 688
 
Retail 
Neighborhood
Community		 ALL 6.94 7.12 18 545 467 7.92 8.14 22 643 569
A 5.62 5.66 4 413 321 6.59 6.85 26 510 440
B 6.83 7.03 20 534 458 7.81 8.00 19 632 555
C 8.39 8.68 29 690 623 9.36 9.58 22 787 713
Retail
Power		 ALL 7.36 7.54 18 587 509 8.25 8.47 22 676 602
A 6.11 6.16 5 462 371 7.21 7.31 10 572 486
B 7.30 7.47 16 581 502 8.06 8.40 34 657 595
C 8.70 9.03 33 721 658 9.52 9.74 22 803 729
Retail
High Street		                      
A 4.23 4.37 13 274 192 - - - - -
                     
 
Multifamily
Infill		 ALL 5.26 5.32 6 377 287 5.95 6.03 8 446 358
A 4.60 4.67 8 311 222 5.34 5.41 7 385 296
B 5.15 5.20 5 366 275 5.78 5.87 9 429 342
C 6.06 6.12 6 457 367 6.75 6.81 7 526 436
Multifamily
Suburban		 ALL 5.67 5.74 7 418 329 6.33 6.45 11 484 400
A 5.01 5.10 10 352 265 5.62 5.71 9 413 326
B 5.53 5.61 8 404 316 6.16 6.26 10 467 381
C 6.48 6.50 2 499 405 7.22 7.37 15 573 492
 
Hotels
CBD		 ALL 7.85 7.91 6 636 546 - - - - -
LUXURY 6.83 6.92 8 534 447 - - - - -
FULL SERVICE 7.55 7.62 8 606 517 - - - - -
SELECT SERVICE 7.94 8.01 8 645 556 - - - - -
ECONOMY 9.10 9.11 1 761 666 - - - - -
Hotels
Suburban		 ALL 8.39 8.44 5 690 599 - - - - -
LUXURY 7.42 7.50 7 593 505 - - - - -
FULL SERVICE 8.07 8.14 7 658 569 - - - - -
SELECT SERVICE 8.46 8.53 7 697 608 - - - - -
ECONOMY 9.59 9.58 -1 810 713 - - - - -