Multifamily investment in the United States continued at a strong pace at mid-year 2021, with markets such as Indianapolis surpassing 45 percent annualized sales growth. According to research from Newmark, U.S. multifamily investment sales in the second quarter of 2021 surged by 238.1 percent year-over-year to reach $52.7 billion. Rents in most U.S. markets have recovered to pre-pandemic levels and have pushed higher in some markets.
Against this backdrop, investors are increasingly focusing on regions where population growth and business expansion are driving demand, said Ben Slad, senior vice president of investments for The Laramar Group, a multifamily investment and property management firm based in Chicago and Denver.
Among the Midwest markets with year-over-year rent growth were Indianapolis (7.8 percent), Kansas City (4.6 percent), Cincinnati (4.5 percent), St. Louis (4.4 percent) and Milwaukee (3.2 percent).
“We expect investment activity to grow in many of these mid-sized Midwest markets due to their stable market dynamics and relative affordability,” Slad said. “Those factors may allow for slightly advantageous cap rates.”
According to an analysis by the Indiana Business Research Center at Indiana University’s Kelley School of Business, Indiana’s population growth over the past decade was driven by gains in Indianapolis and a few other areas.
The 11-county Indianapolis-Carmel-Anderson metro led the way by adding 223,163 residents between 2010 and 2020, an 11.8 percent increase. The Indianapolis metro area’s numeric growth accounted for 74 percent of the state’s net population gain over this period, according to 2020 Census statistics. With a population now at more than 2.1 million people, this central Indiana region’s share of the state’s total population increased from 29.1 percent in 2010 to 31.1 percent in 2020.
Multifamily construction trends
In the second quarter of 2021, residential construction across the United States continued to shift toward the suburbs and more moderately priced markets, and this trend is especially pronounced within the multifamily sector, according to a Home Building Geography Index (HBGI) released in September 2021. During the second quarter, multifamily construction posted double-digit percentage gains in small metro core and suburban areas, while large metro areas experienced a decrease for multifamily building activity.
The HBGI shows that multifamily residential construction grew by 14.3 percent in small metro urban cores and 25.5 percent in small metro suburban areas in the quarter. In contrast, large metro core areas recorded a 0.5 percent year-over-year decline, reflecting the ongoing effect of the pandemic on housing in many major metropolitan areas.