Many investors are still waiting for the dust to settle on the full impacts of the pandemic before committing capital to new properties. As buyers and sellers look for a path forward, Reonomy recently launched a new data series of Market Glance snapshots to help navigate select U.S. markets. As a kick-off to that debut research, Reonomy is providing a recap of 2019 multifamily investment sales with highlights from 10 top MSA to provide a baseline for where the sector was at pre-COVID.

Reonomy Market Glances for Multifamily

Capital has been laser-focused on multifamily for the better part of the past decade, and investors generally stayed that course in 2019. Multifamily fundamentals continue to hold up under the pressures of new supply with relatively stable occupancies and moderating, but still healthy rent growth that was exceeding the pace of inflation. The biggest complaint heard from investors was that they were working harder to find good buying opportunities that could still generate attractive yields in a competitive market that had already experienced significant price appreciation. Cap rate compression has sent buyers searching for higher yields beyond high-demand metros.

The challenge to find attractive buying opportunities in what many believed near peak-level pricing in some markets could have weighed on transaction volume in 2019. Reonomy data shows that sales volume across the 10 top MSAs studied dropped about 11% from $117.9 billion in 2018 to $105.1 billion. Notably, New York City exhibited the biggest decline in sales volume. The $32.7 billion in sales recorded in 2019 is below the $40.6 billion in 2018 and also lower than the $38.6 billion recorded in 2017. Three other MSAs that saw notable declines in sale volumes were Chicago, Dallas and Houston. Although multifamily accounted for 40% of all sales that occurred in the Chicago MSA last year, sales likely were hampered by the changes to the Cook County property tax system that created uncertainty on how property taxes would be affected.

Dallas saw a significant drop in sales volume in 2019 at $4.62 billion as compared to more than $7 billion in annual sales in both 2018 and 2017. In fact, multifamily accounts for just 6% of all property sales in 2019. Investors have been tapping the brakes to see how the market is impacted by the prolonged building boom underway across the Dallas-Fort Worth. There were reportedly more than 40,000 new units under construction or planned at the start of the fourth quarter. Houston also has seen vacancies tick higher in the wake of its active development cycle.

Los Angeles, Miami, Philadelphia, and Phoenix all reported fairly consistent year-over-year sales volumes. Those markets that saw notable increases in volumes included San Francisco and Atlanta. Notably, Atlanta ranked #3 in total sales volume at $11.7 billion, which was up about 13% compared to the $10.3 billion in 2018. Investors have turned to high-growth secondary markets in recent years in search of higher yields, and Atlanta has attracted interest because of its diverse economy and employment growth. Investors also like the revitalization and redevelopment opportunities with projects such as the Atlanta BeltLine, a new park and trail system that is transforming urban neighborhoods across the city.

Price discovery remains top of mind in the wake of economic disruption created by the COVID pandemic, and Reonomy’s Price Index (RPI) data shows fairly steady increases in property prices for 2019. The 12-month trailing RPI for the 10 MSAs averaged 336.36 at the end of 2019, which is a 27% increase over the average of 264.86 at the end of 2016. In addition, that 12-month trailing average for 2019 shows a healthy increase even over pre-recession levels at 58% higher compared to the 12-month trailing index level of 212.88 at the end of 2007.

One of the notable outliers in RPI performance was Los Angeles, which generated the highest 3-month RPI across the 10 MSAs studied at 479.28. The stellar pricing reflects the still strong investor appetite that exists in gateway markets even after the significant price appreciation that has occurred over the past decade. L.A.’s RPI has surged more than 160 points since its pre-recession peak in 2006, representing a 3.2% CAGR. New York City was a more distant second in transaction pricing during 2019. In addition, its pricing levels have been somewhat over the past three years. The metro’s 3-month RPI of 408.55 at the end of 2019 was relatively flat year-over-year. New rent laws approved in that city in 2019 could be one factor that weighed on price appreciation in the second half of the year. However, New York also saw a highly active multifamily sales market last year with multifamily accounting for 73% of all property sales.

The next Market Glance update is scheduled for release in June 2020, which will offer more insight on multifamily investment sales data ahead of the pre-COVID-19 pandemic. If you have questions around any of the markets covered or request for future market coverage, please contact