At a Volatile Time, Multifamily’s Outlook Stays Steady
Experts share insights on the industry's prospects during the MHN Voices midyear webinar.
High occupancy rates, steady rent growth, a wealth of new deliveries and an increasing population of renters by necessity make multifamily a strong investment and development prospect, even in an uncertain economic climate. And some of these unknowns could work to the benefit of astute stakeholders.
This was the consensus during a May 29 webinar focused on the industry’s prospects for the second half, moderated by Multi-Housing News Editorial Director Suzann Silverman. A cross-section of industry experts highlighted the sector’s strengths, and why it is likely to benefit during what may be the end of the current investment cycle’s trough.
Outside the four walls
A wave of new supply mixed with robust net absorption bolsters the sector, even with expected construction slowdowns and only moderate rent increases. According to data from Yardi Matrix, new unit completions reached a peak of 615,000 last year and are expected to gradually decrease by 43 percent in 2027.
The volume of new supply has had a diminishing, yet predictable effect on rent growth. After a $5 Increase in April to $1,736, the average national growth rate represents a 10-basis-point decrease to 0.9 percent year-over-year and is expected to average 1.5 percent by the end of 2025.
Despite being at its lowest rate in more than a decade, occupancy sits at 94.4 percent nationally and is almost certain to rise. “There is a fair amount of new supply yet to be absorbed and a fair amount that needs to be, but it is still getting absorbed,” noted Yardi Matrix Vice President Jeff Adler.
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Adler emphasized that the numbers point to the industry “being at the back end of a cycle,” with most key metrics on track to improve during the next two years. “Relatively speaking, results are pretty good, given the amount of supply that has hit the market and has been absorbed,” he observed.
Adler noted that core markets such as New York City, Chicago and Boston are seeing rent growth recovery, an increasing number of office-to-residential conversions and local incentives that could encourage more development.
The reshoring of manufacturing and a wave of corporate relocations, particularly in the tech sector, are boosting value-add markets in the Sun Belt and Mountain West, which are seeing the bulk of new product. Ample employment opportunities and shrinking supply could benefit investors seeking to round out portfolios with assets in areas offering overperforming fundamentals. For all of the above markets, Yardi Matrix anticipates a medium-term reversion to the mean for key metrics.
But Adler sees 2028 through 2030 as “wild card” years for investment and development across markets, due to unpredictable economic trends and questions about the availability of the materials needed for development.
Key factors
Despite the projected recovery for property metrics, larger economic uncertainty may offer both downside and some degree of upside.
“What’s driving the biggest challenge for (capital) markets is volatility, particularly from an interest rate standpoint,” said Hilary Provinse, Berkadia executive vice president of production and capital markets. Despite some recent cuts, rates remain at their highest in two decades, at a target range of 4.25 to 4.5 percent.
To Joanna Zabriskie, president & chief investment officer at BH Cos., the volatility brought on by tariff and immigration policy is a concern, but their effects on renters’ behavior raise questions, as well.
Zabriskie cited the implications of the slow start to the spring leasing season. “While we are constantly pushing new leases, renewals remain important to us as we navigate this choppy economy,” she said.
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But another factor in occupancy is interest rates, which have discouraged some would-be home buyers and added a solid demographic group to the renter pool. “People who may want to buy a home and are economically stable are instead deciding (to) rent because interest rates are so high,” Zabriskie noted.
These indicators are also delaying current multifamily residents’ decisions to search for new apartments. As Alder noted, “One thing that has allowed supply to be absorbed is reduced turnover, and the availability of units.”
“Consumers have their hands in their pockets right now, and when consumers are scared, they don’t move,” said Zabriskie.
Haves and have-nots
Investing can be daunting right now. Among other reasons, the gap in pricing expectations between buyers and sellers remains significant, and many buyers have negative leverage going into transactions. “There is a real bid-ask spread today, and we are on both sides of it,” said Brett Fawley, CBRE Investment Management director of residential research.
Contributing to the bid-ask gap are high borrowing costs, as well as the hesitancy of sellers, particularly in high-growth markets. “If they can negotiate a (loan) extension, they’ll be picky in accepting offers,” Fawley said. “The pool of actual high-quality assets that you want to buy is limited, and even if there is a motivated seller, there are already enough buyers on that bid sheet.”
With these barriers in mind, Fawley advises buyers to look for value-add properties in fast-growing markets, particularly in the South and Midwest, as they often trade at prices below their debt replacement costs. At the same time, he added, a newer property in lease-up could be a compelling prospect (deal), as the developers are often looking to quickly raise capital for new projects.
On the opposite end of the value-add spectrum are Class B properties from the 1980s and ’90s, according to Marcus Duley, chief investment officer at Walker & Dunlop Investment Partners. Owners of these properties may have good reason to sell, but the assets trade at higher cap rates than their counterparts and often bring underperforming rent rolls or incomplete value-add business plans.
For investors with the patience and means to close on new acquisitions, short-term debt offers the best route to grow net operating income, according to Duley.
And there is no shortage of willing partners. “There’s so much liquidity that anyone can get a loan at some price,” said Provinse. Fannie Mae and Freddie Mac are reliable backstops for funding, but Provinse has also observed enthusiasm from CMBS lenders, life companies and institutional investors. “The bigger are getting bigger and the stronger are getting stronger,” she noted.
Though economic volatility is likely to persist, and new deliveries are expected to slow, strong demand and motivated lenders should be cause for stakeholders to keep their chins up. “We are coming out of the downturn,” Duley said. “I see a lot of upsides because of where we are and the underlying fundamentals.”
