CBRE Declares the Multifamily Market Has Bottomed Out

The U.S. multifamily market has likely turned a corner and has reached stabilization, as improving fundamentals buoy market sentiment, CBRE said in a quarterly report.

“Sentiment has improved significantly, as many investors believe that values have bottomed,” Kelli Carhart, executive managing director of Multifamily Capital Markets at CBRE, said in a statement accompanying the report. “We expect transaction volume will remain healthy throughout the balance of the year.”

After increasing quarter-on-quarter for the past two years, the overall multifamily vacancy rate remained unchanged at 5.5% in the second quarter of 2024 and should begin to fall towards its long-run average of 5% in subsequent quarters, CBRE said.

CBRE expects rents to rise faster year-on-year, starting in the fourth quarter, in tandem with higher occupancy. In the second quarter, rents went up 0.3% from a year earlier, slower than the 0.4% rent growth of the first quarter.

Net absorption, at 126,600, eclipsed apartment completions of 119,400 in the second quarter, CBRE added, with quarterly unit completions expected to moderate in 2025 and beyond.

“We are stabilizing,” Carhart told GlobeSt. “While we’ve had a lot of pressure on supply, the market is absorbing it and responding well.”

The CBRE report echoes recent CoStar Group findings, which suggested the multifamily market is on a path to recovery.

“We’re seeing a very good movement in demand upward from the levels that we saw in 2023,” CoStar’s national director of multifamily analytics Jay Lybik told GlobeSt.com earlier in August. “The spread between supply and demand has been the lowest we’ve seen in the last 11 quarters.”

In contrast to CBRE, which said the vacancy rate may already have peaked and is on a downward trajectory, CoStar Group said the peak in multifamily vacancy rates is still ahead.

Sun Belt Challenges and Opportunities

To be sure, the sector continues to face challenges, particularly in the Sun Belt, where a large volume of supply makes it difficult for property owners to increase rents.

Austin, Jacksonville and Atlanta saw contraction in annual rent in the second quarter and at a faster pace than the previous quarters, in contrast to the Northeast and Midwest, which both enjoyed year-over-year rent growth for all markets, CBRE said.

“Some markets are already on an upswing, and they are not in the Sun Belt,” Carhart said. “They are primarily in the Northeast and the Midwest. [Those markets] did not have supply into the marketplace and were able to secure stable, good rent growth.”

“In the Sun Belt, we’re still working through a lot of supply,” she added. “That puts pressure on newly delivered assets that are leasing up. It means longer absorption periods, longer stabilization periods, and maybe not the pro forma rents that were projected.”

Still, “a lot of the capital recognizes that a lot of population growth and overall demand is [concentrated] within the Sun Belt,” Carhart said.

Positive investor Sentiment

CBRE Carhart’s echoed CoStar’s Lybik in assessing institutional investor sentiment, nationally, as positive.

Institutional investors view the market as poised for recovery and expansion, Lybik said, driven by stable asking rents and a slight decline in the 10-year Treasury yield, which has spurred acquisition interest.

In its report, CBRE noted that multifamily investment volume jumped 82% quarter-on-quarter to $38.3 billion. The sector accounted for nearly half of commercial real estate investment volume for the quarter.

“We’re still not in a fully functioning transaction market, we’re back to 2014 levels,” Carhart noted. Because many sellers believe values will rebound in 36 to 48 months, they are still reluctant to sell in today’s environment, Carhart added. As such, the market is likely to see more opportunities in 2025 and with further acceleration in 2026 and 2027.

“I feel very optimistic about where we’re headed.”