release edition [031] read time [5 minutes] Welcome to The Multifamily Download, a weekly newsletter where I provide institutional insights to help you build an exceptional Multifamily career. Today at a Glance:
SupplyMultifamily investing has been challenging over the past few years for many reasons:
While many investors are expecting robust organic rent growth in 2026-2027, due to the slowing delivery of new supply, I'm not convinced that this upcoming period will produce rent growth as strong as some are predicting. Why? It's simple: Demand is elastic, and it's ever-changing. Many would like to rent apartments, but they don't have to do so if the price doesn't make economic sense. They could live at home, rent a house with roommates, live in an RV or mobile home park, travel the world, etc. At a certain point, apartments may simply become unaffordable in certain markets, placing downward pressure on rents. Rent as a percentage of household income data shows we aren't there yet, on average, but each market has it's own unique characteristics, and therefore must be evaluated on it's own individual merit. Plus, demographic trends aren't entirely supportive of higher rents: The growth of native-born Americans is on a long-term declining trend, immigration is going to be much tighter than the previous expansionary supply period of 2021-2024, and it appears that 'Main Street' American consumers are feeling squeezed financially. (I realize there are many counter-points including delayed household formation, exorbitant home prices, and relative affordability in higher supply markets). With the above in mind, below you'll find some more recent supply data that would indicate that rent growth is on the way. As you review these graphs and data points, remember two things: (1) demand is elastic and ever-changing, and (2) absorption will always look good when incentives (i.e. concessions and specials) are compelling. According to RealPage, "2Q25 marks the first time annual inventory growth has fallen quarter-over-quarter by more than 20 basis points in at least 15 years". Additionally, RealPage says, "this marks a third consecutive quarter of excess annual demand in the U.S., meaning total annual absorption outpaced concurrent deliveries, resulting in a demand surplus. The nation’s largest apartment markets with the most demand surplus in the year-ending 2nd quarter include Houston, Chicago, Los Angeles and Atlanta." Tighter supply markets are seeing rent growth, while those with continued inventory growth are not, as shown below from RealPage. It's noteworthy that many of the markets with rent cuts are also heavily dependent upon tourism (Orlando, Nashville, Las Vegas). One final thought to remember, which challenges the "rent growth is coming" narrative: The longer that it takes to deliver and lease-up new deliveries, the longer it will take to see meaningful organic rent growth in markets with elevated new supply. As noted in this Yardi Q3 2025 Supply update, new supply is taking longer to deliver than originally scheduled, and construction starts have been higher than expected, with year-to-date starts at a similar level to the same period in 2024. Why does this matter to Mulitfamily investors? Because value-add investing in higher growth markets will be challenged until Class-A properties are absorbed and stabilized, and demonstrate rent growth such that rent spreads return to $300-$600+ on a net effective basis. Currently, the rent spread between Class-A versus Class-B/C is historically tight. Until this spread returns, value-add investing will be largely non-existent in many of the higher supply markets listed above. Rent growth will always be a two-sided equation involving both supply and demand. Cap vs Interest RatesA common misconception in Multifamily is the link between cap rates vs interest rates. Because of recency bias, many investors incorrectly assume that cap rates rise and fall with interest rates. In simple terms, there are many variables that must be considered, and this research paper from does a good job assessing those variables. I would encourage you to read it when you have time. Here are two key takeaways from the executive summary: 1. "Although it is often viewed that Treasury rate changes drive cap rate movements, this relationship has not always followed a uniform trajectory, suggesting that broader market forces beyond Treasury yields play a role in shaping how cap rates, spreads, and valuations behave. Our analysis identified several additional factors that help explain the movement of spreads outside of interest rate changes." 2. "We found that multifamily spreads are significantly influenced by unemployment (a proxy for economic conditions) and the availability of real estate debt. A weakening labor market tends to place upward pressure on cap rates and widens spreads as investors seek greater returns to compensate for increased uncertainty across both the economy and real estate fundamentals. Greater availability of CRE debt can exert downward pressure on cap rates and compress spreads as ample capital reduces the investment premium sought by CRE stakeholders. Spreads move in the opposite direction of inflation; rising inflation often leads to central banks hiking interest rates, leading to higher Treasury yields and compressed spreads. While there was some evidence of apartment spreads moving in the opposite direction of GDP growth, this relationship was less conclusive". I find that it's imperative to zoom out and look at longer-term macro trends, too, in order to get a better understanding of where we are today relative to the past. The graph below demonstrates this historical context, and shows that investment in the Apartment sector has been in a steady uptrend for 30+ years. The result? Long-term cap rate compression as capital has continued to flow into the asset class. Will this trend continue on a go-forward basis? Maybe, but maybe not. Housing has been a great investment historically, given the essential function it provides, but it's important to realize that cap rates don't go down forever. The Real Estate business is cyclical (for many reasons), and being able to adapt to the current landscape is incredibly important for sustained success, especially as we enter a new investing cycle in the post-COVID, post-supply era. As I wrote about 6-months ago in TMD 006, I believe that employment has been far softer than the data has reported. Keep a close eye on the BLS employment data including any revisions, as employment will continue to be a strong driver of cap rates in the years to come. Weekly ListenThis week's episode is The Rent Roll Ep. 44 where Jay Parsons interviews Matt Vance, CBRE's Head of Multifamily Research. In this episode, Jay and Matt chat about what is driving the current slowdown in rent growth, while also highlighting the continued strong demand, improved affordability trends and low turnover. You can listen to the full episode here. Wrap UpThat's it for this week. I hope you found this edition of The Multifamily Download insightful and enjoyable. If so, would you consider sharing it with a friend or colleague? Simply send them this link. I always welcome your feedback. Reply and let me know what you'd like to see in the future. Thanks for reading. See you next week! Forwarded this email? Sign up here. Join me on LinkedIn | Twitter | Website |
The Multifamily Download · August 9, 2025
New Supply Update, Cap vs Interest Rates, & More
Get the next issue
Free every Saturday, read by thousands of multifamily professionals.
Subscribe Free →