Dive Brief:

• Apartment sales fell for the 18th straight month in February, but the pace of decline continues to slow. After January 2024’s year-over-year drop of 45% to $4.5 billion, transactions slid 35% to $4.9 billion in February, according to a report that data firm MSCI Real Assets shared with Multifamily Dive.
• A primary culprit in the sluggish sales market is a lack of entity-level transactions for the last 16 months, according to MSCI. These mergers and acquisitions can add billions of dollars to monthly sales totals.
• Another driver of sales, portfolio transactions, declined 44% YOY. In the five years before the pandemic, these transactions were 20.6% of all deal activity. They fell to 11.8% in February.

Dive Insight:

The only thing keeping the sales markets from falling further is the $4.3 billion in individual property sales, which dropped 34% YOY in February. However, that figure is still 46% lower than the $8 billion sold, on average, each February for the five years before the pandemic.

Garden apartment sales dropped 38% to $3.2 billion, while mid- and high-rise sales declined 28% to $1.7 billion, according to MSCI.

However, the overall February sales numbers could change as deals come in closer to the end of the month. “I wouldn’t be surprised if we have some upward revisions of the numbers,” Jim Costello, co-head of MSCI's real-assets research team, told Multifamily Dive.

Despite overall sluggishness, apartment sales still outpaced other real estate sectors. Due to some entity-level deals, retail passed multifamily in January, according to MSCI. That sector fell to third in February, as industrial took second.

Pricing declines moderate

From July 2022 to February, the Real Capital Analytics Commercial Property Price Index fell 18%. During that period, cap rates increased from 4.8% to 5.3%. “The high double-digit rate decline that we saw was a function of the excesses of 2021 and 2022,” Costello said. “Some of the periods of 2021 and 2022, we had record high levels of deal volume that we had never seen before.”

However, prices only dropped 8.9% YOY in February. “The prices have been moderating,” Costello said. “They’re down, but they’re down at a less rapid rate. So the momentum is not one of just a continual slide at this point. It's not accelerating.”

However, if distressed sales pick up, pricing could get pushed down, according to Costello. The upside is that transactions might accelerate. “Eventually, with some of these loans that have been extended a bit as people try and figure out what happens, there comes a point when they'll have to make a decision,” Costello said.

Eventually, owners will realize that the Federal Reserve won’t save them with deep rate cuts this year, Costello said. “The first thing that has to happen is people have to incorporate all the information into their thinking about the market,” he said. “It's not clear they have yet, but that's what I'm looking for.”

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