Apartment Cap Rates Creep Higher in the Country’s Top Markets

Cap rates on apartment buildings in the nation’s top markets have been creeping higher, but lower interest rates might yet change the trend.

Multifamily investors continue to pay high prices for new acquisitions and accept historically low yields. Average multifamily cap rates have been historically low for some time and fell even further in the first half of 2019.

There are a handful of markets, however—New York City, San Francisco, Los Angeles and Chicago—where multifamily cap rates have inched higher. These are some of the same markets where developers have built the most new apartment units in recent years. Housing advocates have also pressed lawmakers to pass new rent control laws in New York City, California and Chicago, worrying some investors.

Cap rates are definitely moving up in some of the top markets of the country,” says Jim Costello, senior vice president with research firm Real Capital Analytics (RCA).

Lower interest rates may have already begun to push cap rates back down—even in these top markets.

“Cap rates did move up move up in the latter part of 2018 and early part of 2019 in prime urban submarkets in the top six markets… But CoStar data shows a decrease in multifamily cap rates since the first quarter of the year, for all markets, including the top six,” says Andrew Rybczynski, senior consultant with research firm CoStar Portfolio Strategy.

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