This year could be one of the best buying opportunities in the multifamily sector in years, as elevated demand in a limited supply environment drives higher rent growth, according to a Gray Capital LLC analysis. Absorption in the sector topped 546,000 square feet last year, the second-highest rate in more than four decades.
The sector continues to face financing challenges due to elevated interest rates, but sales volume has increased dramatically, the investment firm said. Strengthening fundamentals in the apartment market and pent-up demand from investors have driven sales volume higher for four consecutive quarters. Retail investors have been the slowest to return to the multifamily market, where institutional investors have already begun to make deals.
Investment momentum in the multifamily market is expected to continue throughout the year ahead, said the analysis.
Demand is being buoyed by falling new apartment construction, with quarterly starts dropping to less than 40,000. The country hasn’t seen a new apartment pipeline that small since the Great Recession, said Gray Capital. New supply is expected to continue to decline this year and next year, while apartment demand should stay at current levels. This could drive higher rent growth in the near and medium terms, said the company.
Rent affordability has improved over the past 18 months, which is driving further demand among renters, especially as this option is more financially feasible than buying for many people. Home values exceeding 7.2 times the average annual income will likely dissuade potential homebuyers and in turn help the apartment market sustain high demand and provide room for further rent growth.
A stable unemployment rate below 5% is another positive factor driving stronger housing demand this year, and with home buying costs on the rise, apartment demand is expected to grow through next year, said Gray Capital.
Industry observers expect 10-year treasuries and the federal funds rate to be near 4% by the end of 2026. As multifamily asset pricing adjusts to elevated interest rate reality, investment opportunities will emerge for buyers who recognize the positive long-term fundamentals of the multifamily market, said the analysis.
Source: “Multifamily Poised for Best Buying Opportunity in Years”
