Following a record 2021, investor demand for multifamily remained robust in 1Q22 with $63.0 billion in sales volume. In addition to 1Q22 volume signifying the largest first quarter on record, year-over-year volume accelerated 65.4%. Trailing twelve-month volume increased to $374.3 billion.
Dry powder earmarked for investment into North American commercial real estate rose to a record of $250.0 billion in 1Q22. This level of dry powder equates to over $714 billion in purchasing power at a 65% LTV. Opportunistic and value-add strategies continue to be the focus for funds targeting multifamily investment, accounting for 88.0% of all fund targets.
While appreciation has been the primary driver of total returns recently, investors may shift their attention to markets with higher income returns should growth slow. A reversion to the mean is also possible with appreciation returns accounting for 19.8% over the trailing twelve months, well above the 10-year annualized average of 4.6%.
On a year-over-year basis, effective rent growth in 129 out of the top 150 markets outpaced inflation and no market experienced rental decline over that time. As migration picked up during the pandemic, rent growth throughout Florida outperformed the national average, as the state registered the top 5 markets in the country during 1Q22.
Supply and Demand
High levels of new supply were met by even stronger demand in 1Q22 as 95,000 units were absorbed – outpacing new supply by over 16,000 units. New supply totaled 78,000 in 1Q22, with an additional 336,000 units projected to be delivered through the end of 2022, which is expected to be a record level of deliveries with over 414,000 new units added.
Multifamily mortgage debt outstanding increased to $1.8 trillion, a 2.4% increase quarter-over-quarter. In nominal dollars, banks saw the largest increase quarter-over-quarter at 3.3% growth or $16.5 billion.