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A Return to Fundamentals
As we close out 2025, it’s becoming increasingly clear that the multifamily market is less about if it recovers — and more about when. After two years of rising interest rates, cap rate expansion, and limited transaction activity, the sector appears to be nearing the end of a long reset phase.
Cap rates across many markets have largely stopped moving higher. Transaction volume remains below historical norms, but pricing has become more consistent, bid-ask spreads are slowly narrowing, and the market is beginning to feel more stabilized.
Importantly, this stabilization isn’t being driven by aggressive assumptions or cheap leverage. It’s being guided by fundamentals. Rent growth, while modest, has held in most markets. Occupancy remains lower, but healthy. New construction starts have slowed materially, setting the stage for supply pressures to ease over the next 12–24 months. In other words, the excesses that weighed on the sector are gradually being worked through.
Capital markets are responding accordingly. While lending is still tighter than in prior cycles, debt is readily available — particularly for well-located assets with proven cash flow. Investors are underwriting conservatively, using more realistic rent growth assumptions and lower leverage — a dynamic that historically produces healthier outcomes over the long term. Periods like this often precede strong years for disciplined buyers.
Another important backdrop is housing affordability. Homeownership remains out of reach for a growing number of households, keeping demand for rental housing intact. While this alone won’t drive dramatic rent growth, it reinforces a consistent level of demand that supports our long-term investment thesis in workforce housing.
As we look toward 2026, we believe multifamily is positioned to benefit from a combination of moderating supply, steady demand, and improving capital market clarity. For patient, well-capitalized investors focused on operations and long-term fundamentals, the coming period will prove to be more attractive than it feels today.
Those who stay focused on fundamentals during down cycles are often best positioned when momentum returns. Have a safe and Happy New Year.
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