Survey Offers Good News for Multifamily Industry in '12

By Dees Stribling, Contributing Editor

Chicago—Cap rates are going to stabilize, interest rates will remain low and home ownership rates will continue to decline. These are the conclusions of the recently released RealShare/Jones Lang LaSalle’s Apartments Outlook 2012 Survey, which was completed by more than 150 private investors, real estate brokers, developers, REIT and institutional investors this fall. If their responses sound like good news for the multifamily rental business, they are—and many investors expect these conditions, which are being spurred by demand, to continue at a similar pace in 2012 and beyond.

The survey asked respondents where they anticipated multifamily cap rates to trend in 2012 for the most competitive markets. A majority of respondents (39 percent) said cap rates should stay stable, while another 21 percent say they’ll decrease less than 50 basis points.  Some 15 percent of the respondents felt cap rates will decrease more than 50 basis points, while the same number (15 percent) think cap rates will rise by less than 50 basis points.

What’s changing is investors’ appetite for yield, according to the survey. With interest rates hovering around 4 percent, respondents were asked to peg the breaking point for them to leave the market as cap rates fall. Half of all respondents (50 percent) said between 5 and 6 percent is the breaking point, while another 26 percent say if cap rates fall to between 4 and 5 percent, they’re out. Just 14 percent say cap rates below 4 percent are the only way they’ll leave the market.

The survey also touched on the question of whether Americans have given up on owning a home. American home ownership has dropped from its peak of about 69 percent of all households in the mid-2000s to about 64 percent now, and about 4 million new renters have been added to the rental market between then and now. So for the moment at least, renting has the edge.

The survey asked respondents when the propensity of renting versus owning would likely shift back to home ownership. A majority of respondents (44 percent) said that won’t happen until at least 2015 or later, while another 32 percent said the market will reach a balance in 2013—with a shift towards buying in 2013. Just 15 percent said that a market balance will come next year, with a shift to buy in 2013.