Multifamily Minute Reader Reflections: Where's Best to Buy in 2023?
Our survey of 40,000 multifamily investors show that most are shifting to a more suburban acquisition strategy this year.
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In our Jan. 10 Multifamily Minute, we asked our more-than-40,000-strong readership to answer a quick question: Where will your next apartment building investment be located?
Survey Results
Our results show that it's all about the suburbs. About two-thirds of our readers indicated that they'd prefer to buy outside of busy city centers, targeting lower-density areas in primary or secondary markets.
Downtown areas are preferred by almost one-fourth of our respondents, with very few opting for really small markets or rural areas.
See the full table of results below.
Preferred Investment Location | Percent of Respondents |
|---|---|
Suburban areas in a secondary market | 35% |
Suburban areas outside a major, primary market | 31% |
Urban/central areas in a major, primary market | 12% |
Urban/central areas in a secondary market | 11% |
A smaller, tertiary market | 8% |
Rural areas | 4% |
Why the Suburbs?
So, why all the focus on the suburbs? Every investor has his or her own reason, but there are a few dynamics at play here.
1. Suburban Properties Are Less Expensive
This isn't always true, of course, but suburban multifamily investments are broadly more accessible for most investors from a pricing standpoint. Lower prices can mean that you need less financing, on average, or can even take advantage of some remarkably competitive small balance multifamily loans. At a time when interest rates are climbing, that makes great sense.
2. Rents Are Rising Faster in the Suburbs
An article from GlobeSt in October 2022 showed that rental rates have increased far faster in suburban markets than in city centers, when examining trends since early 2020. That seems in line with how I'd expect rent growth to go in the future, too. After all, should we enter a recession, more and more people will likely shift to lower-cost, suburban parts of metro areas in an effort to save costs. As a result, rents will pick up even further.
3. More Investors Are Focusing There Already
The two points above aren't news to most investors. Cap rates dropped lower for garden apartment communities — far more typically found in suburbs — than for high- or mid-rise apartments in the second quarter last year, Wealth Management reported.
That means timing can be everything: As more and more buyers shift focus to the suburbs, pricing will rise even faster. In other words, if you already own (or can find a great deal) in suburbia, you could see some tremendous growth in property values with the influx of new buyers.
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Our Previous Survey
In case you missed it, last week we asked about the biggest challenges in finance for multifamily investors this year. Read our analysis of the results.