Editorial|&utm_term=|Website-Editorial-NAT(Website)|"> Auction.com, cited the reason for the apartment market's strength. “The continued strength of the apartment sector is directly related to the trends we've been seeing in residential real estate, namely the rise in household formations and the ongoing decrease in home ownership rates,” he said. We caught up with Sharga to talk to him about what gives the apartment market its staying power, how long this can last and what he expects to happen with multifamily cap rates.

GlobeSt.com: What gives apartments its staying power in the investment market?

Sharga: It's tied to the residential housing market. What we're seeing is finally some movement toward household formation. Mom and Dad are finally kicking Junior out of the basement, and many households are going toward rentals. This is happening at a time when apartments are already at 96% occupancy. So, the market of potential renters is growing.

GlobeSt.com: How long can this run continue, in your opinion?

Sharga: We will see this trend continue for the next couple of years. I believe homeownership will decline a bit, and even the supply of apartment units that's coming online is not strong enough to keep up with the demand.

I don't see homeownership going up for at least the next two years, but households still have to be formed and people have to live somewhere. The construction industry agrees: 40% of housing starts are attributed to multifamily units. Also, for single-family opportunities, we will continue to see some momentum there as people will look for places to rent.

GlobeSt.com: Are any other property sectors approaching apartments' popularity?

Sharga: Office is doing pretty well. Industrial is flat, and retail is very weak at the moment. And hotels is an anomaly—we're seeing volume growth, but prices are weak, and it's not certain whether values are going down or the mix of hotel types is changing with lower-priced hotels selling better.

With office, it seems like a lot of the vacancies we were seeing during the recession have been eliminated, and there's been an uptick in both activity and pricing. Industrial is flat, but it's still at a fairly healthy number. The only segment that's suffering is retail.

GlobeSt.com: What do you see happening with cap rates in the multifamily arena?

Sharga: They're at the lowest they've been for the last 15 years. People are willing to pay relatively high prices for the assets because they are good investments. But there's a limit to what you can charge people for rent, and we should have seen an inflection point by now. This, too, is an anomaly.

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