Investors are showing interest in multifamily properties in areas such as the suburbs around Hartford, where The Regency Apartments in New Britain sold for $7.4 million in June.

Single-family home sales are falling across the state, but the rental market is going strong and investors continue to see multifamily housing as a smart purchase. Rising interest rates, however, are causing investors to look more closely at price.

“If we look back a year or so ago, interest rates were so low, very aggressive cap rate deals made sense,” said Steve Witten of Marcus & Millichap in New Haven. “We see people being a little more conservative.”

During the first half of this year, 3,332 units were traded in Connecticut for a total volume of $368 million. Hartford County led the pack with the highest number of units traded: 1,561, with a volume of $102 million.

Hartford was the big story of the first half of the year. The city’s revitalization is prompting continued growth and value, and the demand is greater than the supply, Witten said. There have been $2 billion in public and private investments used to revitalize downtown Hartford – including areas like Adriaen’s Landing, a 33-acre, $860 million mixed-use project that includes the new convention center, a hotel, and retail and office space.

Projects like that should attract more business to Hartford, which, in turn, is expected to lure echo boomers and retiring baby boomers, according to a report from Marcus & Millichap. The influx would cause increased demand for housing and boost the multifamily market in the city.

“Two major demographic factors stand ready to shape the Hartford multifamily market: retiring baby boomers and an influx of echo boomers,” according to the report. “Retiring baby boomers will continue to flock to urban areas and out of single-family homes in order to avoid the associated maintenance demands. As a result, condominiums and rental apartments will capture this growing segment of the population.”

A number of affluent retirees wishing to maintain a home in the city will bode well for the for-sale apartment market, according to the report. Many of those will want a residence in the city, while maintaining a single-family home elsewhere or heading to Southern climates for the winter. Those boomers should help absorb the 1,000 new owner-occupied units that are soon to be completed, but many likely will rent apartments.

Echo boomers, or baby boomers’ children born between 1982 and 1995, will represent another demographic shift.

They are the country’s largest and wealthiest demographic, according to Marcus & Millichap, and will bring money and attitudes that are favorable to multifamily property investors in Hartford.

“These young adults value cultural ideas of fitting in, upscale and eclectic dining, retail shopping as an event, and being connected to a diverse community, and their presence in Hartford should help improve occupancy levels by the end of 2006,” according to the report. “The echo-boomer influx and attitude may be crucial components in the success of Hartford’s downtown redevelopment.”

The suburbs around Hartford also are doing well, with deals like the $7.4 million sale of The Regency Apartments in New Britain, a 55-and-over community that was sold in June.

‘Very, Very Healthy’

Across the rest of the state, most urban centers are expected to see solid growth in the second half of this year. Urban redevelopment initiatives and projects in the downtown areas, like those in Hartford, are expected to fuel the growth.

Stamford and Bridgeport both continue to experience vacancy rates that are lower than the national average. There is little developable land, so there have been pushes in both cities for redevelopment of downtown buildings. Marcus & Millichap predicts little development for the rest of the year, however, as builders wait until fundamentals show more improvement.

Bridgeport, like Hartford, is seeing new development in the downtown area. A project called Downtown North includes the conversion of the Citytrust Bank building into 118 rental apartments and 29,000 square feet of commercial space.

“The project seems viable in spite of the high vacancy rate, since demand is expected to increase in the near future,” according to the report.

New Haven’s large and growing student population and its lack of single-family construction bode well for its rental market. The city also will be home to the Yale-New Haven Hospital Cancer Center, which is expected to create more than 500 jobs.

“Partly as a result of this renewed interest in revitalizing New Haven’s downtown core, overall multifamily market conditions are improving in the central business district,” according to the report. “Asking rents have been pushed up to an average of $1,498 per month for Class A apartments, with effective rents climbing at a similar rate to an average of $1,437 per month. New Haven’s multifamily vacancy rate is projected to fall 20 basis points to a low of 4.3 percent by the end of 2006. In turn, interest in properties [that] can be renovated to luxury status has risen in New Haven as revenue growth for Class A apartments is forecast to exceed 6 percent.”

Witten said the state’s multifamily markets will stay healthy for some time: “Their rent fundamentals are very good. It’s a very, very healthy apartment market statewide.”