The increasing cost of capital is squeezing multifamily cap rates, which have been on a steady decline throughout the course of the pandemic.

According to a new analysis from Moody's Analytics, that will ultimately pressure property values in the sector — and "without continued unprecedented rent growth, the darling multifamily asset class likely carries the most risk of value decline while the benchmark US Treasury rate is on the rise," analysts say.

"Although Q3 has finally started to show a slight increase for industrial, office, and retail, cap rates have remained sticky. For multifamily, cap rates have continued to decline, which, along with tremendous rent growth, has propped up multifamily values compared to equities and other investments," Moody's Kevin Fagan and Xiaodi Li write. "But the increasing cost of capital and mounting concerns about ex-ante exit cap rates will ultimately drive buyers' bids lower and property yields higher for the multifamily sector. So, multifamily property values will face pressure from both the Fed pushing rates and banks following suit with loan interest rates."