The Optima Chicago Center in Chicago’s Streeterville neighborhood was just sold for $155 million to Edge Principal Advisors LLC, one of the most notable multifamily transactions in the US this year.

CHICAGO—The nationwide construction boom in multifamily housing hasn’t dimmed investors’ interest in such properties. According to Real Capital Markets’ 2018 Multifamily Investor Sentiment Report, the majority are in a buying mood, with many finding a shortage of quality assets, particularly in the value-add category. And the healthy job market, along with depressed home ownership rates, among other factors, should propel the multifamily investment market for the rest of the year.

“From our perspective, things seem to be picking up,” Tina Lichens, chief operating officer, Real Capital Markets, tells GlobeSt.com. According to company data, multifamily sales volume for the US was $69.8 billion for the first half of 2018, a 7.7% year-over-year increase. Furthermore, more than half of the investors surveyed in July now consider themselves net buyers, while another 26% want to remain in a holding pattern. Just 16% consider themselves net sellers.

As the company found in previous surveys, potential buyers have earmarked a lot of capital for the multifamily sector. Its research shows a wide variety of investment sources, including non-traded REITS, public REITS, private high net worth capital, foreign capital have an estimated $250 billion ready to go.

And that has certainly piqued the interest of potential sellers. Lichens says there has been a roughly 30% increase in deals hitting the market. The Midwest region has been even more dramatic, showing a 37% increase.

What keeps investors coming back to multifamily properties is a feeling of safety, Lichens says. “It’s been exactly ten years since Lehman Brothers,” and even though many worry it’s too much to expect the economic recovery to continue much longer, “people always need a place to live,” and that should sustain demand even if the economy reaches a plateau.

“There is also the millennial effect,” she adds. Young people seem content to adopt urban lifestyles that include renting apartments rather than buying a first home. And renting still makes sense for retirees and baby boomers. “They can get an awesome three-bedroom apartment for less than the cost of owning a home,” and without any of the headaches of ownership. In addition, living in a rental community keeps retirees close to friends and family. “Developers are seeing these trends and capitalizing on them.”

According to the US Census Bureau, there were 76,908 apartment units built across 14 states in the Midwest in 2017, with a total construction value of $8.3 billion. The top five states according to number of units built include IL, with 13,522 units; TN, with 9,649 units; MN, with 8,042 units; MI, with 7,133 units; and OH, with 6,580 units.

Still, new units are getting snapped up almost as soon as builders can complete them. Lichens points out that in several key Midwest markets, such as Downtown Detroit and Minneapolis, vacancy rates now stand at less than 3.5%. “There is clearly not enough multifamily supply.”

Among the industry experts interviewed by RCM, 69.7% ranked interest rates as a looming concern, and along with increased competition, a shortage of quality assets and overbuilding, that could dampen deal flow in 2019. More rate increases would lead many to take a more cautious approach in their underwriting or chase higher yields by moving into value-add properties.

However, “in some markets value-add has been the thing to do for a while,” Lichens says. The hotly competitive nature of that investment segment has led to high prices in some cases. “It’s almost played out.”