National Multifamily Sales Volume Rose in the Third Quarter, but Remains Well Below Recent Norms

The multifamily sector continues to tread water, as owners, developers and property managers throughout the United States cope with effects of the coronavirus pandemic.

In this still-uncertain environment, investors have exhibited caution, and transaction volume has remained well below the record levels of investment capital that poured into the apartment sector leading up to the pandemic.

Nationally, quarterly multifamily sales volume came in at roughly $18 billion as of the end of the third quarter. That figure will probably increase as CoStar research gathers additional data on deals that were completed toward the end of the third quarter.

That $18 billion represents a marked improvement from the $13 billion in sales recorded in the second quarter. However, third quarter sales volume still marks a sharp decrease compared to the quarters immediately preceding the pandemic. Sales volume nationally was $34 billion in the first quarter of 2020 and $46 billion in the fourth quarter of 2019.

But while investment volume is still down in nearly all markets compared to recent norms, some cities saw a sharp uptick in transaction activity in the third quarter.

Unsurprisingly, the nation’s largest and most expensive cities ranked among the leaders in transaction volume in the third quarter, despite subpar market performance. Los Angeles, Washington, D.C., and New York all have large inventories, and properties in those markets sell for premium pricing.

Sun Belt stalwarts Dallas-Fort Worth, Atlanta and Phoenix also stand out as some of the top markets for sales volume last quarter. Dallas-Fort Worth remains a hotbed of value-add activity, and its impressive demographic growth and resilient economy continue to draw investors.

Atlanta and Phoenix boast similarly strong demographic trends and saw demand and rent growth surge in the months following the pandemic. The rebound in market conditions is giving investors more confidence in deploying capital in both regions. Though investment volume in Atlanta and Phoenix is still down compared to 2019, it wouldn’t come as a surprise if both areas see even more sales activity to end the year, as long as market conditions continue to improve.

But to give a better picture of how much sales volume has slowed compared to individual markets’ recent norms, CoStar also compared transaction volume in the third quarter of 2020 to each market’s prior 5-year quarterly average.

Only two cities, Charlotte, North Carolina, and St. Louis, saw investors deploy more capital in the third quarter than their respective 5-year averages. Charlotte, in particular, saw investors return in earnest, as the Queen City’s multifamily market recovered quickly from the initial effects of the pandemic. The increase in sales volume in Charlotte was driven almost entirely by out-of-state buyers, said Jesse McConnico, CoStar’s market analyst for Charlotte.

Other cities that saw mild drop-offs in sales volume last quarter include demographically strong Sun Belt markets such as Austin, Texas; Raleigh, North Carolina; Dallas-Fort Worth; Phoenix and Nashville, Tennessee.

Another leader on the list is Seattle, which has benefited from its relative affordability and strong performance compared to West Coast peers such as Los Angeles and the San Francisco Bay Area. While recent transaction activity is still down from the whopping $3.7 billion in sales recorded in the fourth quarter of 2019, Seattle’s third quarter figure of more than $1 billion was a notable increase from both the first and second quarters of 2020.

The list of cities with the lowest third quarter sales volumes relative to recent history includes gateway markets such as New York, Boston and Chicago.

The largest decline though was in Orlando, Florida, a city reeling due to its dependence on the tourism industry. Furthermore, news that Disney was slashing 28,000 jobs nationwide may continue to deter investors from acquiring assets in Orlando and Orange County, California, until the economic situation becomes clearer.

With a bit of positive momentum at its back, investment activity could continue to ascend in the fourth quarter. Typically, investors rush to get deals closed by the end of the year. With more investors demonstrating cautious optimism in the apartment market, more assets are expected to change hands to close out the year.

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