CHICAGO—Ten apartment markets that bear watching by investors, and each for different reasons. In Denver, for example, a key factor is the rapid job growth, while in Dallas it's the fast pace of new construction. One thing investors ought to keep an eye on for each of the 10 markets—Austin, TX; Boston; Houston; Kansas City, MO; Las Vegas; Portland, OR; the Research Triangle in North Carolina; and Tucson, AZ as well as Dallas and Denver—is “the employment rate as it relates to multifamily development,” Reid Bennett, Chicago-based national council chair of multifamily properties for Sperry Van Ness International, tells GlobeSt.com.

In many of the MSAs which Bennett tracks on a monthly basis, “We're seeing an influx of jobs in many sectors, but we're also seeing a different effect” in many of them. Atlanta and Dallas, for example, have comparable numbers in terms of brisk employment growth, “but Dallas has 6,500 more apartment units that they're bringing to market. It's interesting watching the employment rate as it relates to the number of units being brought to market.”

With the uptick in employment a more recent phenomenon in many markets, the development process may not have caught up yet, given the time it takes to go through the permitting process and line up financing. That's coinciding, Bennett says, with “the perception among the younger generations that renting is better,” even if they're in a position to opt for home ownership.

Along with a long-term trend among 24- to 40-year-olds to prefer renting to owning, there are also collegians who graduated during the recession and were forced to live with their parents, and divorcing spouses who couldn't afford separate apartments. With an improving economy, “That's all changing,” says Bennett.

At the same time, though, “We are being very mindful of a number of MSAs that are bringing a substantial amount of product to the market.” In April, for example, 453 multifamily construction permits were issued nationwide, a 22% year-over-year increase.

Investors are keeping an eye on pricing, cap rates and interest rates and the relationship among the three. “In Chicago, some of the newer multifamily developments are asking $350 per square foot,” says bennett. “That's fine as long as interest rates remain where they are for the foreseeable future. But as interest rates tick up, cap rates are going to follow.”

Pricing is likely to remain strong for trophy assets in major markets. However, Bennett notes that investors have increasingly begun to chase yields.

“On deals in the major metros, you have anywhere from 25 to 40 bids,” he says. “When that asset gets sold, that means anywhere from 24 to 39 investors that didn't buy a deal.” That's driving them into secondary “and, in some cases, tertiary” markets to chase yield. That's the case, Bennett says, even as the investors are aware that properties in markets outside the primary MSAs aren't likely to see as much appreciation.

Bennett doesn't see cap rates compressing further in the apartment sector. Darling that it may be as an asset class, “in the multifamily world, we're always watching that pendulum. And while right now a lot of the younger generations see renting as a better alternative,. eventually the pendulum will swing back to where home ownership becomes more attractive.”