Multi-residential development and transactions accounted for a significant share of U.S. real estate investment in 2015 during a year when the majority of the nation’s large urban markets enjoyed declining vacancies and rising rents. Analysts now anticipate more of the same in 2016.

“We foresee solid investment activity, continued job growth and, as such, fundamental rent growth in the office, industrial, retail and multi-residential sectors,” Earl Webb, president of U.S. operations for Avison Young, predicts in the newly released 2015 Annual Review & 2016 Forecast.

The overview of 41 large and mid-sized U.S. urban centres almost consistently ranks multi-residential properties among the top two asset classes for trade volume last year. In sync with this trend, demand is outpacing available product, providing impetus for new construction.

For example, Atlanta saw $4.3 billion in multi-residential transactions in the first three quarters, equating to 42 per cent of all commercial sales in that period. Austin and Charlotte likewise report dramatic increases in sales volumes over comparable periods in 2014 — a 78 per cent jump in Charlotte’s case to register $1.1 billion worth of investment, while investment tallies hit $2.4 billion in Austin.

Las Vegas represents a typical vibrant market for new construction. Seven buildings, comprising approximately 1,430 units, were completed in 2014, with another 16 new buildings, totalling more than 3,350 units, completed or in progress last year. “Since Las Vegas is one of the most popular secondary markets in the U.S., multi-residential investors from primary markets continue to view the region as an opportunity to achieve higher yields and returns for the purpose of balancing their overall portfolios,” Avison Young reports.

Meanwhile, with fewer than a million residents, Fairfield County, Connecticut, demonstrates that multi-residential investment is not just a large metropolis phenomenon. Sales surpassed $236 million in the first three quarters of 2015, representing 40 transactions. A single deal worth $114.7 million, or $366,108 per unit, accounted for nearly half this value. More than 700 new units are also due to be delivered to the market in seven buildings now under construction.

Downtown rejuvenation is spurring multi-residential demand in Cleveland. With approximately 13,000 people living in the city’s core, the downtown vacancy rate sits at 2.4 per cent. Last year’s delivery of 300 new units were easily filled, as is expected to be the case with the 275 units now under construction. More than 4,000 new apartment units are now in the planning stages.

Developers are also tapping into incentives such as the U.S. rehabilitation tax credit to create new housing in heritage buildings. Avison Young highlights conversion initiatives in Minneapolis, where 6,500 new apartment units were completed or under construction last year, and Detroit, where five heritage redevelopment projects are in progress and eight more are expected to break ground in 2016.

This is all in line with earlier predictions, setting the scene for continued growth this year.

“As we had forecast for 2015, we saw continued growth in positive absorption across most U.S. markets with a stabilization of cap rates for all property types,” Webb notes. “Cap rate compression has largely run its course, but fundamental growth has not — a situation that will create abundant investment opportunities, provided that investors have realistic expectations, are creative and manage their investments aggressively.”