2018 Market Expectations: Capital One

According to the company's latest survey of 121 industry professionals, the new year will bring investors to search for value outside of urban core markets and get back into being active as buyers or sellers.

The newest Capital One survey conducted at ALM’s RealShare Apartments Conference has produced an outlook of significant shifts for multifamily investors going into 2018. The survey gauges emerging trends and industry insights from 121 expert responses. 

Technology is a large factor in how people interact with different services, making it no stranger to the multifamily industry. Of those surveyed, 59 percent said they expressed interest in advances that would strengthen the tenant/landlord relationship, while 21 percent wanted technology that will help identify investment opportunities. Speaking of investment, respondents named Millennials as the top generation making the largest impact in the 2018 market. That came to a total of 72 percent, followed by Generation X at 16 percent and Baby Boomers at 12 percent. 

Market Value

Investors are now shifting focus from major metros to second/tertiary markets, with 43 percent saying they offered the greatest potential for value. Of the total, 35 percent named suburban markets as the next target for investment. Among those surveyed, 17 percent said urban markets would lead to the most potential for growth, a significant drop from last year’s results of 47 percent. 

Last year, 43 percent of respondents mentioned they anticipated not buying or selling due to the risky market, but this year those numbers are down significantly. Investors are getting back into the market, with only 16 percent saying they expected to not be a net buyer or net seller in 2018. In addition to that, 57 percent of investors plan to focus exclusively on acquisitions and 27 percent on selling. Value-add investing was also up for discussion and received a positive outlook for 2018. A total of 83 percent said it would continue to drive NOI growth in the coming year. 

“These results indicate that 2018 will be another strong year for multifamily, with more investors leaving the sidelines to participate in the market as either buyers or sellers. There were many other interesting findings in this year’s survey,” Jeff Lee, president of Capital One Multifamily Finance, told Multi-Housing News. “But of particular interest was the appetite that we saw for technologies that would improve and enhance the landlord and tenant relationship. We saw technology as a disruptive force in our recent MIT Emerging Trends in Real Estate white paper and I believe that the RealShare survey has honed in on one of the areas that is ripe for improvements.” 

Financing Shift

When it comes to financing sources, results of the survey established that 43 percent of multifamily executives will seek financing from agency lenders, which is an increase by 15 percent from last year. This also marks the first time that agency lenders are the top choice for investors. Banks and debt funds rounded out the top three, with 39 percent and 8 percent of respondents, respectively, stating they would rely on those sources for financing. 

Interest Rate Concerns 

Although most investors anticipated the rise in interest rates, it still remains a top concern among multifamily experts. A whopping 47 percent of those surveyed stated that interest rates are the biggest risk for multifamily equity investors. Following that was 42 percent saying that domestic and international politics posed the largest risk for investors. 

Charts courtesy of Capital One