Apartment Execs See Continued Slackness in Market

Equity and debt financing conditions are largely unchanged from last quarter, according to the latest survey by NMHC.
Chart courtesy of NMHC

Apartment executives continue to see weakness in the overall U.S. market, but sales and financing appear to be weathering stormy conditions, according to the latest quarterly survey by the National Multifamily Housing Council (NMHC).

The survey of 122 CEOs and other senior executives nationwide generated a “market tightness” index of 43 for January 2021, indicating that market conditions around the country are getting looser on balance. “Tight” markets are those with low vacancies and high rent increases, and 50 is the breakeven level. Although the majority of respondents felt that conditions were unchanged from last quarter, the reading increased from 35 in NMHC’s October survey.


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Moreover, as the nonprofit noted in a statement, the percentage of respondents who reported weaker market conditions has been steadily dropping, from 82 percent in April 2020, to 71 percent in July, 49 percent in October, and 30 percent in the latest survey. According to NMHC, the trend could indicate that the apartment market is approaching an inflection point.

These slack market conditions are largely a phenomenon of high-cost urban areas, the organization added, noting that a wave of renters relocating from cities continues to drive demand in many suburban markets. Despite weakened demand in top-tier markets such as New York City, Los Angeles and San Francisco, however, only 8 percent of respondents said they plan on abandoning these markets. Nearly a quarter said they plan to continue investing in these high barrier-to-entry cities while roughly half said they would invest carefully in special opportunities.

Resilient sales

According to the survey, the debt financing index dropped from 73 in October to 49 in January, with nearly half of respondents saying that conditions remained the same in the debt market. Most executives also found that equity financing conditions were unchanged, with an index reading that inched down from 62 to 58.

The investment market appears resilient, with a sales volume index of 53, dropping from 72 in the last survey but still above the breakeven level. The reading was the second-best in two and a half years, NMHC noted. Newmark reported in November that multifamily investment sales in the U.S. had surged 55.9 percent in the third quarter, the strongest consecutive quarterly gain since 2011, as investors plowed more capital into faster-growing, secondary markets.