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The investment climate

In a sign of where we are in the overall cycle, the highest percentage of respondents in the six years of completing the survey said they plan to “hold” in the multifamily sector in the next 12 months.

In a sign of where we are in the overall cycle, the highest percentage of respondents in the six years of completing the survey said they plan to “hold” in the multifamily sector in the next 12 months, 47.1 percent in all. That was up from 44.0 percent in 2018. 

Meanwhile, the percentage saying they would “buy” fell from 41.0 percent in 2018 to 37.4 percent this year. The “buy” number had peaked in our initial survey in 2014 at 55.0 percent. Even two years ago it was still at 47.3 percent. 

The percentage of those saying they would “sell” was low, but ticked up slightly from 14.0 percent in 2018 to 15.5 percent this year. In fact, that is the highest percentage of respondents saying they planned to sell in any of NREI’s multifamily surveys.
That planned behavior correlates with respondents’ expectations on where cap rates are going in the next 12 months. Overall, 53.9 percent of respondents said they expect cap rates to rise in the next year. That’s down considerably from 69.0 percent in 2018. Meanwhile, 29.0 percent said they expect no change and 17.1 percent said they think cap rates will decrease in the next 12 months.

Aside from industry fundamentals, another factor that could be driving current sentiment on multifamily investment is the state of interest rates. Whereas for years the expectation was that interest rates had nowhere to go but up, now respondents are split as to whether interest rates will keep rising or if they have peaked. A year ago, 90 percent expected interest rates to rise. And that is what happened with the Federal Reserve adjusting its target rate several times. Fast forward to today and only 44.7 percent of respondents in this year’s survey expect further interest rate increases. Now, instead, 46.0 percent of respondents expect them to remain flat. And a minority, 9 percent, even said they expect interest rates to decrease. (Last year only 2 percent expected interest rate decreases.)

In concert with interest rates, respondents also expect stability when it comes to the risk premium (the spread between risk-free 10-year Treasuries and cap rates). Overall, just more than half of respondents (53.0 percent) expect the risk premium to remain stable, while 39.8 percent expect it to increase. Only 8 percent expect the premium to decrease.