Walker & Dunlop sees a healthy apartment market in the U.S., with demand in the first half of 2019 just below the record level attained in 2018, vacancy tightening and rents grinding upward. Effective rents for institutional properties grew by 3.3 percent year-over-year in the second quarter, up 1.6 percent over the previous quarter, as low unemployment rates and ongoing job growth fueled healthy absorption.
The vacancy rate declined by 20 basis points year-over-year to 5.8 percent, even as apartment stock continues to expand by 2 percent a year, according to a new report by the commercial real estate finance firm. More than 4,400 buildings providing 797,000 units are currently under construction, up by 0.8 percent from the same period last year. Favorable demand fundamentals are expected to offset the active pace of development.
Multifamily sales remain strong, with acquisition volume surging 18.5 percent year-on-year to $43.2 billion in the second quarter and the trailing fourth-quarter volume rising 13.3 percent year-on-year to $183 billion. The average cap rate remained relatively unchanged from the past three years at 5.5 percent.
Pricing is supported by the current low interest rate environment, which is expected to continue in the near term following a second rate cut by the Federal Reserve in September.
Senior housing comes of age
Investors are overall bullish on the senior housing sector, as the baby boomer generation continues to retire and the 75+ age group is poised to become the largest population cohort in the U.S. Revenue gains in the 2.9 percent to 3.4 percent range are projected for assisted living and independent living properties over the next 12 months, according to the report.
The debt and equity markets are drawing an influx of capital, including foreign equity capital, as senior housing gains acceptance as an institutional asset class. Government-sponsored enterprises are major backers of the sector, with Fannie Mae financing more than $15 billion in senior housing since 2008 and Freddie Mac securitizing more than $14 billion in senior housing loans since 2009.