Where Have Cap Rates Fallen the Most?
Apartment cap rates continued to fall over the past year for most of the nation’s largest markets and some of the deepest declines have been in locales that are typically slow-and-steady performers. A total of 31 of the nation’s top 50 markets tracked by RealPage Market Analytics recorded declining cap rates during the year-ending 1st quarter 2023, according to data from Real Capital Analytics. Markets with the steepest drops were spread across the country, with four in the South region, while the other three regions were each represented by two markets. The deepest compression was recorded in Newark-Jersey City, which saw cap rates fall 62 basis points (bps) year-over-year to 4.07%, the eighth-lowest cap rate nationally. Cap rate declines in excess of 30 bps were also recorded in Richmond (-45 bps), New York (-38 bps), Cincinnati (-37 bps) and Greensboro/Winston-Salem (-35 bps). Rounding out the top 10 markets for cap rate compression were Sacramento (-28 bps), Detroit (-28 bps), San Jose (-26 bps), San Antonio and Memphis (both -25 bps). San Jose’s decline took its average annual cap rate to 3.78%, the second-lowest cap rate among the nation’s top 50 markets, behind only Phoenix (3.77%). None of the other top 10 markets for cap rate compression landed among the 10 markets with the lowest cap rates nationally. Despite the cap rate freefall in Cincinnati, Memphis and Detroit, those markets still landed among the markets with the 10 highest cap rates nationally.