Expert: Multifamily Remains Buyers' Market Amid 'Generationally High' Supply

There’s a lot of waiting and seeing across commercial real estate, as various uncertainties remain in the market from interest rates to the election – and the multifamily asset class is no different.

But maybe one thing that’s unique for multifamily is the supply levels. It’s so extreme that Jay Remillard, co-head at global investment firm CP Capital, calls it a “generationally” high amount” that has been delivered over the past 12 months.

DEMAND ISN’T THE ISSUE

However, demand doesn’t seem to be the issue.

“Demand in the first half of the year was the second highest level for the first half of a year after 2021, which was a crazy year, because it was all the pent-up COVID demand,” Remillard told GlobeSt.

“It just can’t keep up with the supply.”

But of course, every market is different. For example, Remillard said it has been easier to raise rents in more limited supply markets like Boston compared to cities like Phoenix and Denver.

“It’s just how much competing supply is in that area that determines how much we can push rents,” he said.

TAMPA AND SOUTH SEE MORE DEMAND FROM HURRICANE IMPACT

Tampa Bay was a market seeing high demand, and the aftermath of Hurricane Helene and Hurricane Milton, with the unfortunate damage the two storms caused, has fueled even more of it.

“A lot of folks looking for two and three bedrooms because their homes either are gone or won’t be ready for them to come back in for six to 12 months,” Remillard noted.

“We are consistently getting calls from potential buyers, many of them coming out of places with rent control or rent stabilization like New York City. A lot of people are trying to sell their properties there and move to more business-friendly states, and they’re looking for new assets where they don’t have to do a lot of work.”

He added that along with Florida, other Southern states that are negatively impacted by hurricanes including South Carolina and Atlanta are also seeing a “tremendous amount of demand.”

MULTIFAMILY REMAINS A BUYER’S MARKET

For these reasons Remillard believes that multifamily currently remains a buyer’s market. He thinks generally that those who decided to make acquisitions over the past 12 months “are going to do phenomenally well.”

He estimates that construction costs are cheap thanks to starts for new product dropping- making it an ideal time to develop. Sellers, meanwhile, are in a tough position now with the current state of the market.

“I think a lot of people are saying we’re waiting until after the election, it’s never a good time to sell in the winter, because that’s when rents are the lowest, and concessions, for free rent is the highest,” Remillard warned.

But what’s encouraging for sellers is buyers are at least looking in the market. Remillard said that he sees around an average of 30 property tours, anywhere between 150 to 175 different investment firms sign confidentiality agreements to at least consider the terms, and there are up to 20 bids on each property. He calls this trend “exciting to see,” because for much of last year, a “handful” of bidders for each property was all that was happening.

CP CAPITAL TARGETING WALKING AND DRIVING-FRIENDLY ENVIRONMENTS

Right now, CP Capital, which focuses on the multifamily asset class, is targeting areas experiencing population and job growth that are friendly to consumers who can find everything from grocery stores to entertainment venues within a short walk or a drive on the acquisition front. Sometimes these are classified as “surban” neighborhoods. For New York City, think of Staten Island, a borough of the metro area.

“It’s not overly suburban and it’s not in a downtown core area,” Remillard said of a place like Staten Island.

While CP Capital will look for the right opportunities for acquisitions, it has been active lately with sales. For example, in September 2023, it said goodbye to a 236 multifamily community in Chicago and sold a 312-unit apartment community in Los Angeles this month.

RENT GROWTH MIGHT HAVE TO WAIT UNTIL 2026

As uncertainties remain with the election and where interest rates will wind up, Remillard thinks rent growth generally will be “muted” for the rest of the year. While he’s bullish things will start to pick up – that might not happen next year. It will take some time for the high supply to get absorbed.

“People are looking at 2026, as the US shifting back into a period of significant undersupply, which will probably put upward pressure on rents,” Remillard said.

But it might be a good time to be an investor and grab deals at a discount. Remillard forecasts there will be “strong rent growth” in 2026 and 2027.

“We cannot wait to get shovels in the ground on a bunch of deals,” he said.

According to CP Captial, the company has invested almost $16 billion in national real estate, covering more than 70,000 residential units and 21 million square feet total of commercial space.