U.S. apartment market shows strength in study

Survey data from the First Quarter 2006 Real Estate Research Corp./Certified Commercial Investment Member Investment Trends Quarterly showed strong growth in the apartment sector. Apartments garnered 24 percent of the sales volume and 26.8 percent of the transaction volume in 2005, putting the sector in second place behind offices.

Transaction volume for apartments, according to the National Association of Realtors Commercial Forecast, increased 90 percent compared to the previous year as of the end of the third quarter of 2005.

The strength is attributed to a combination of modest but stable investment figures, continued conversion of multifamily properties to condominiums and declining vacancy rates. The vacancy rate in the multifamily sector dropped to 5.7 percent, due primarily to increased condo conversions.

Additionally, one-third of industry leaders who responded to the RERC survey cited apartments as the best investment category.

“The key for serious real estate investors in this transitional environment is to recognize that in general, capitalization rates have compressed about as far as they will, and that for the near term, returns will come from price appreciation,” said Kenneth Riggs, president and CEO of RERC, in a news release.

“Investors should focus on the fundamentals with respect to vacancy rates, rents and other basics as we look for the appropriate balance between risk and return,” Riggs added.

Other findings

Among other results from the RERC/CCIM survey:

• Respondents said the increase of interest rates was the biggest risk to the economy.

• Power centers were expected to under perform in 2006, while central and suburban office properties, industrial warehouse and research and development facilities, regional malls and neighborhood centers were expected to have average performances.

• More than half of the completed transactions – 58 percent – recorded in the RERC/CCIM report for calendar year 2005 were for deals that exceed $5 million.