In its Fall Capital Markets report, Calabasas, Calif.,-based commercial real estate brokerage firm Marcus & Millichap paints a bright picture of a resurgent commercial real estate market with both debt and equity capital flows flooding into the market.

After dropping 10 percent during the credit crisis, the volume of commercial mortgages reached a high at mid-year—rising by $140 billion over the past 12 months. Marcus and Millichap says commercial banks, CMBS lenders, insurance companies, and government-sponsored agencies are driving that trend. But that’s not the only force behind the liquidity injection.

“Equity capital of all stripes — from local investors and 1031 exchanges to institutions that include REITs, private equity and sovereign wealth funds — have accelerated acquisitions and portfolio repositioning to capitalize on the low cost of capital, consistent revenue streams, and rising prospect for appreciation,” Marcus and Millichap says in the report.

The multifamily sector has enjoyed this advantage for a few years now. With cap rates now down to three or four percent in core markets, investors are pushing to secondary and tertiary markets in search of yield. “But even those markets are appreciating, with average cap rates for high-quality apartments reaching below seven percent,” Marcus & Millichap says in the report.

Upside Remains in Apartments
Even with cap rates at historically low levels and construction ramping up, Marcus & Millichap remains optimistic about multifamily despite oversupply fears from other sources. In the fall report, it says the 2.1 million echo boomers coming online could support 1.4 million apartments over the next five years.

“The recession also left 3.3 million echo boomers living with family, but as job creation accelerates, many of these young adults will move into apartments,” Marcus & Millichap said in the report.

Even with these millennials doubling up, demand lowered apartment vacancy rates to 4.4 percent in the second quarter, the lowest level since 2001, according to Marcus & Millichap (though other sources see vacancy rising). Rents have adjusted as well and now stand 18 percent higher than they were at the trough in 2010.“Multifamily asset performance has surpassed expectations, boosted by favorable demographics, job growth and emerging household formations,” Marcus & Millichap said in the report.

Not surprisingly, developers saw this growth and starting building again. Right now, Marcus & Millchap expects 238,000 new units to come online in 2014. Despite that supply, which could cause short-term volatility in markets like Washington D.C. and Austin, rents have continued to rise.

Developers weren’t the only ones drawn to apartments. Investors have also bypassed other asset classes for apartments, which had stable financing with Fannie Mae and Freddie Mac. But as the market improved the two have cut back their lending from 87 percent in 2009 to 47 percent share in 2013.

“In addition, banks, insurance companies, institutions and CMBS programs have stepped up their lending, producing a highly competitive lending environment,” Marcus & Millichap says in the report. “Loan coupons are mostly in the four-percent range but can go as low as the mid-3 percent range depending on the term, leverage and borrower credentials.”