Industry on Pace for a Record 2018
Apartment transaction volume grew again in Q3 as the apartment sector pushes toward a record year for single-asset sales.
In most quarters, student housing constitutes about 4 percent of overall deal volume. In Q3 2018, driven by Greystar’s purchase of student housing REIT EdR, it was responsible for 17 percent of all deal activity, according to Real Capital Analytics.
Outside of student, the apartment sector as a whole continues to thrive. So, well that it is on pace for a record year in individual sales. Through the first three quarters of the year, $91.4 billion in apartment assets have been traded.
“Price trends for apartments reflect this fact -- that deal volume is on pace to set a record this year,” RCA wrote in its quarterly report. “The RCA CPPI for apartments climbed 10.7-percent YOY [Year over Year] in Q3’18.”
Deal volume rose for both garden (4 percent YOY) and mid- and high-rise apartments (34 percent YOY) in Q3. RCA said the Greystar-EdR deal boosted high-rise sales.
In single apartment sales, mid- and high-rise deals rose 24 percent in Q3 and garden-style sales fell 5 percent. Overall this year, deal volume rose 30 percent for mid- and high-rise assets, while garden-style transactions only increased by 3 percent. Even though sales have been better for mid- and high-rise assets, cap rates have stayed at a steady 70-bps spread between garden and mid- and high-rise since early 2017.
Pricing is a different story. The RCA CPPI for mid- and high-rise apartments was down 0.4 percent in Q318 from Q218. The RCA CPPI for garden apartments was up 2.6 percent in Q318 from the previous quarter.
“That cap rates trending in the same direction but prices are diverging suggests a wide variation in income trends,” RCA said in the report. “Mid- and high-rise assets have had to contend with relatively heavy levels of construction in key urban markets, which has suppressed income growth.”