Led by the $74.3 million sale of NordHaus and the $53 million sale of the 4Marq apartments, the second quarter of 2024 saw a sharp increase in multifamily sales compared with the first quarter and this time last year, according to a new report by Northmarq.
Northmarq’s report on the 2024 Q2 multifamily market showed that transaction levels increased twofold compared with 2023 Q2, and that activity was up 67% from the first quarter of 2024.
Investment levels weren’t the only thing on the rise, with the median price-per-unit up 6% from the previous year to $122,900.
Ted Bickel, a managing director at Northmarq, said the spike in activity is a result of equilibrium in the interest rate environment.
Holding steady for interest rates and cap rates has led to investors getting off the sidelines. High dollar deals took place in both the core and the suburbs of the metro, he said, and deals with a price tag of $15 million or lower saw a notable increase in activity too.
Some of the interest has also been sparked from the lag in investor interest in office properties. Office values dropping, Bickel said, have forced investors to look elsewhere for allocating their dollars and a lot of it has landed in multifamily.
This equilibrium faced in the second quarter, Bickel said, has the industry at an inflection point.
“The last two plus years have been very challenging in the investment sales, capital markets front,” Bickel said, citing issues from the interest rate environment. “A further drop in interest rates with expected drops continuing into 2025, and you couple that with the lack of new construction supply, I think the overall investment sales activity should further increase next year and in 2026, all things staying the same.”
Average rent in the Twin Cities metro sits at $1,556, an increase of 3% from this time last year and is expected to continue to rise for the remainder of 2024, though potentially not as quickly, the report says. Apartment vacancy across the metro sits at 4.9% and is expected to remain there for the last two quarters.
According to a report prepared by the Federal Reserve Bank of Minneapolis, operation costs for apartment owners are increasing . Costs like insurance, wage increases and security expenses are putting landlords in a more financially precarious situation than before. Bickel said rent is playing catch up with some of the slower growth from previous quarters.
“We’re seeing rent growth outpace expense growth, which hits the bottom line, increases your (net operating income),” Bickel said. “Whereas in previous years we’ve seen the opposite. We’ve seen rent stay flat to negative revenue is going down, expenses are going up considerably.”
Development was steady for the second quarter compared with the first, though there was a 19% drop from 2023 in terms of deliveries. The report does point to the west metro and the south metro as being bright submarkets where construction projects remain active. After three years of declining deliveries, 2024 is expected to “return closer to historical norms,” according to the report.
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