Multifamily Properties Record Slight Fall in Capital Values but Enjoy Strong Rental Growth

Multifamily capital values declined by 2.2 per cent over the year to September 2023, according to the results of the latest CBRE UK Multifamily Index.

The fall in capital values occurred despite the properties in the index recording strong rental growth, with rental values increasing by 9.5 per cent in the year to September 2023. The benefits from rental growth were countered by outward movements in capitalisation rates, which rose by 42 basis points over the last twelve months.

The results can be compared to the performance of commercial property over the same period, as reported by the CBRE UK Monthly Index. While the capital value of multifamily assets fell by 2.2 per cent, retail capital values declined by 12.0 per cent, office capital values fell by 18.5 per cent and industrial capital values declined by 19.4 per cent over the year to September 2023.

There were some notable differences in performance between multifamily assets in London and assets in other parts of the UK. Capital values declined by 5.7 per cent for London assets in the year to September 2023 whereas they increased by 0.8 per cent for assets in the Rest of UK.

This difference reflects capitalisation rates for multifamily assets moved more strongly in London, increasing by 59 basis points compared with 28 basis points for assets located elsewhere. However, assets in London reported stronger rental value growth, at 10.9 per cent, whereas multifamily properties located in the Rest of UK saw rental value growth of 8.5 per cent for the year to September 2023.

Jennet Siebrits, Head of UK Research at CBRE said: “These results show how multifamily assets have weathered a challenging period for real estate investment markets generally. While investors would not have wanted to see a fall in capital values, the performance of multifamily assets has been resilient in comparison with other commercial real estate sectors. In that context, it is not surprising that investors continue to exhibit strong interest in the sector, as demonstrated by our recent European investor intentions survey.”

Jason Hardman, Executive Director, Valuation and Advisory Services at CBRE said: “Capital market conditions have been challenging but multifamily assets have continued to deliver solid returns to investors underpinned by strong rental growth and high levels of occupancy. These fundamentals have reinforced confidence in the sector and encouraged a rise in investment through the latter part of 2023 as demonstrated by our latest residential investment figures.”