Report: Surging rents once convinced investors to overpay for apartment buildings, but as rent increases eased and interest rates rose, values dropped 21% year-to-year.

NEW YORK – Rising interest rates have led to a 21% decline in apartment prices over the last 12 months, according to the Green Street Commercial Property Price Index.

The decline is seen mainly in multi-unit apartment buildings, however. Institutional investors tend to own fewer individual family homes, where values have been more resilient.

That drop makes apartments the second-worst performing category of real estate after offices, which have lost 25%.

Shares in listed real estate investment trusts (REITs) that specialize in owning and managing apartment blocks – such as AvalonBay Communities, Inc. and Apartment Income REIT Corp. – have lost one-third of their value over the past year.

In 2021, rents for professionally managed apartments rose by nearly 12%, and investors last year spent $294 billion on multifamily housing in the United States, on top of a record $353.5 billion in 2021, according to real-estate advisory firm Newmark Group Inc.

During those years, buyers paid too much on the theory that they would be able to push rents even higher. Instead, rent growth is expected to cool to 4% in 2023, according to Newmark forecasts – only slightly higher than the 3% long-term average.

Source: Wall Street Journal (04/04/23) Ryan, Carol

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