What a decade it was. The apartment market zoomed to great heights in the middle of the decade only to seemingly grind to a halt as the decade recently ended. Luckily it did not crash and burn like the 1 to 4 unit market but the slowdown in activity has been dramatic. Cap rates posted an impressive string of six consecutive annual declines from 2000 to 2006, hitting a low of 5.26%, followed by an ominous three year run-up through 2009 which shows no signs of letting up. As the jobs market deteriorated in 2008 the rental market finally succumbed in 2009 forcing many owners to lower rents at the same time cap rates were going up, resulting in a softening of apartment prices. 2010 looks to be more of the same as the apartment market does not seem to have hit bottom yet, according to several owners interviewed for this article.

For the 5 unit or more market, in the RHANAC service area, annual sales volume averaged less than $250 million for the first few years of the past decade, which quickly ballooned to over $600 million in both 2004 and 2005. In 2008 that volume had dropped to $156 million, a 74% decline from the peak years. 2009 sales were even less, to the point where 2008 and 2009 combined sales volume, about $275 million, was what it was in 2002 alone. The annual number of transactions peaked in 2004 at 289 and has steadily declined every year since then. In 2008 there were 93 deals and in 2009 there were only 66. In 2000 the average cap rate was 7.4%. By 2006, after dropping every year, it reached a low of 5.26%. In 2007 it was back up to 5.54%, in 2008 it was 5.7% and in 2009 the average cap rate was 6.27% and climbing. In 2000 the median price per square foot was $72. By 2007 the median price was $172 which means that prices of apartment buildings with 5 or more units more than doubled in value. In 2009 the median price had dropped to $146 per square foot, or a drop in prices of around 15% from the peak.

In most aspects the 5 to 9 unit segment the decade trends look quite similar to the overall 5+ market, with a few exceptions. The median price per square foot in 2000 was $71 and grew to a peak of $190 in 2007, suggesting that 5 to 9 unit values rose higher that the overall apartment market, which makes sense.

However, in 2009 the median price per square foot had fallen to $118 suggesting that values had fallen 38% off the peak for smaller apartment buildings, which seems a bit high but that is what the numbers say. There was also a corresponding spike in the average cap rate in 2009, jumping from 5.08% in 2008 to 6.15% which might explain the drop in values (see graph). Dollar volume and the number of transactions for these smaller apartment buildings has fallen off at about the same rate as the overall 5+ market.