In This Article
This article is presented by Connect Invest.
The multifamily real estate market has, without a doubt, been through some tough times over the past few years. Rising interest rates and a falling demand following a multifamily building boom compounded to make multifamily less of a safe investment than it once was.
However, according to the most recent CBRE Multifamily Underwriting Survey, there are signs that confidence is returning to this segment of the real estate market.
What is behind the optimistic sentiment uptick, and should this confidence translate into multifamily investment action if you’ve erred on the side of caution so far?
Rate Cuts + Expected Surge in Renters = Improved Buyer Sentiment
The latest federal interest rate cuts in September and October are a major factor in the survey’s optimistic prognosis. In Q3, 64% of core-asset buyers expressed a positive outlook, as opposed to just 57% in Q2. Value-add buyers had the highest levels of confidence at 70%, up from 62% in Q2.
Lower interest rates make any real estate investment more viable, and they are particularly helpful to investors who cannot rely on sharp rental growth, as is the case in the current climate. Investors are feeling confident despite the fact that underwriting assumptions of annual asking rent growth for value-add properties actually decreased in Q3, to 3.2%.
Rent growth deceleration is by now a stable trend. Internal rate of return (IRR) targets have been going down for value-add assets for seven consecutive quarters. For core assets, underwriting rental growth predictions for the next three years are at a modest 2.8%.
Overall, the actual market figures are pretty stable, with mostly unremarkable variations in both going-in and exit cap rates.
The point is that the direction is positive, with the average multifamily going-in rate showing a decrease of two basis points. The possibility of another interest rate cut in December is, without a doubt, keeping the mood buoyant in anticipation of further incremental cap rate compression.
Southern Demographics Boosting Investor Confidence
Interest rates, as much of an immediate relief as they are, do not sway markets alone. So, what’s keeping buyer sentiment buoyant?
For one, those positive sentiment percentages are boosted by a trend-bucking increase in IRR targets for core assets in Sunbelt markets, notably in places like Dallas and Austin—the very locations that have experienced the most dramatic ups and downs in their respective multifamily sectors over the past few years. An unprecedented increase in demand following the much-documented “Sunbelt Surge” resulted in a construction boom, which eventually dampened demand (and rental prices).
Why, then, despite continued rental growth deceleration and increased construction, are investors feeling positive? Because it now appears that the localized construction booms have not fixed the housing shortage in these—or any other—regions.
According to JLL, there is a shortage of 3.5 million housing units in the U.S. This, combined with an unprecedentedly high (and rising) cost of homeownership, means that many would-be homeowners will remain renters in 2026. This is causing the uptick in multifamily investor confidence.
Paradoxically, the new multifamily construction that has decelerated rental growth has also made renting a more affordable and therefore attractive option for many people. Rather than buying an overly expensive home with an exorbitant mortgage (interest rates are still high), many renters are expected to renew their leases instead.
Investors are, correctly, banking not on sharp rental growth, but on steady demand. And current demographic statistics are showing that the South in particular, is experiencing a population boom, with suburban Dallas emerging as the fastest-growing city in 2024.
Demographics are a long game, but investors cannot ignore the shorter-term moving trends that can unfold over a few short years—as was notably the case with the boom-and-bust fate of Austin during the past five years. Currently, people are moving South more than to other U.S. regions, but we need to be more specific here: Renters are moving not just anywhere in the South, but to attractive job hubs like Miami and Dallas.
Bidding Activity Also Up
Rising investor confidence is reflected not just in percentages of positive sentiment but also in bidding activity, which is showing an uptick, especially in the multifamily sector, according to JLL’s Global Bid Intensity Index.
You might also like
“As capital deployment accelerated during the third quarter, institutional investors are signaling increased confidence in the market, even as uncertainty persists,” said Richard Bloxam, CEO of capital markets at JLL, in a press release. “We expect business confidence will continue to improve and pave the way for continued capital flow growth into 2026.”
Get In on These Trends With Connect Invest
Want to make the most of multifamily real estate investing while mitigating some of those market uncertainties? When you invest with Connect Invest, you’re investing in high-yield, short-term investments across a diversified portfolio of residential and commercial real estate. That way, you can maximize the advantage from current market trends—without compromising your long-term portfolio health.
