"Demand for multifamily product is in direct correlation with the health of the economy and employment growth, and a prolonged economic downturn coupled with further weakening in employment could begin to pressure credit ratings," says Fitch director Brendan Thorpe. "An additional negative influence on multifamily product demand is the relatively low interest rate environment that has made single family home ownership an attractive and affordable alternative to multifamily."

Nevertheless, Fitch maintains a Stable Outlook on the multifamily sector. "The overbuilding of the last 12 months in many markets has come to a halt, signaling that REIT management teams have become more disciplined in their development activities," says Thorpe. "Acquisitions of stabilized properties in markets with strong fundamentals will be the target for investment by REITs over the next 12 months."