Marquette University’s Dr. Mark Eppli presented results of a new study measuring the risk-adjusted returns of apartments against other real estate classes over time and by geography during the 2018 NMHC Research Forum.
Not only does the multifamily industry have strong fundamentals for the foreseeable future—research shows that we will have to build 4.6 million new apartments by 2030 just to keep up with the strong demand—but it’s got a long history of outperformance. That’s the pitch many industry executives have given investors. And now there’s new research to prove it.
During the 2018 NMHC Research Forum, Dr. Mark Eppli, a professor of finance and the Bell Chair in Real Estate at Marquette University, gave a presentation on a new study measuring the risk-adjusted returns of apartments against other real estate classes over time and by geography. The study builds on previous work illustrating the benefits of investing in multifamily and is the first body of work coming out of the NMHC Research Foundation.
Eppli and co-author Dr. Charles C. Tu of the University of San Diego found that from 1986 on, apartments have made up an average of 17 percent of the NCREIF Property Index, accounting for $36 billion in market value. And at the end of 2016, that portion had climbed to 24.3 percent, or $128 billion in market value.
The researchers compared the risk-adjusted returns for apartments against industrial, office, retail and hotel property types. On a national basis, apartments were found to have outperformed the other asset types, and that the besting held up for three-, five-, seven-, 10- and 15-year holding periods.
Eppli and Tu also investigated whether the same outperformance could be seen across geographic regions over that same period of time. And the answer was, yes, apartment returns were stronger in every geographic region—as well as metro market tier—than those of other property types.
Additional analysis of income and appreciation trends also showed that apartments provide an anecdotal hedge for inflation. Apartments have the lowest ratio of annual capital expenditures to property value, which is where other property classes are seeing returns negatively affected.
Dr. Eppli’s full presentation deck is available here.