Investor Sentiment Improves for Multifamily Amid Broad Decline for CRE

Despite a challenging economic landscape dampening investor sentiment for office, retail and industrial real estate, the multifamily market is regaining its appeal. A shortage of new housing in key markets, combined with high mortgage rates and rising home prices has shifted the focus back to multifamily and is raising the outlook for the sector, according to new findings from Altus Group.

Investors are softening their concerns about oversupply, especially in the Sun Belt, where steady absorption of new units has tempered fears despite a boom in multifamily completions. The Altus Group’s Q3 2024 U.S. CRE Industry Conditions and Sentiment Survey found that 69% of respondents expect multifamily to outperform other sectors, including senior housing, life sciences, and hospitality. Respondents pointed to sustained demand for rental housing, the burden of high mortgage rates, and obstacles in the single-family market, all of which are expected to bolster demand for apartments over the next year.

“The shift in sentiment reinforces a simple fact — demand for housing is inelastic,” Cole Perry, Associate Director of Research at Altus Group said. “However, it will take time for this renewed confidence in multifamily to translate into higher transaction volume. Apartment sales are still well below what we’d expect in more typical market conditions.”

Oversupply issues have challenged markets like Phoenix, Dallas, Atlanta, Austin, and Nashville, but multifamily remains stronger in regions like the Northeast, Midwest, and West, where construction has been more restrained compared to the Sun Belt. Altus Group also noted that pending home sales have dropped to their lowest level since the Great Financial Crisis, driven by limited inventory and high costs, which favors multifamily owners.

While multifamily is seeing a rebound in sentiment, the outlook for other real estate sectors remains mixed. Even though Class A office space has outperformed lower-tier office properties, investor sentiment toward the office sector as a whole remains negative, as trends like downsizing and hybrid work persist three years after the pandemic.

In retail, the divide is clear: consumer essential and prime-location retail are viewed more positively, while sentiment toward the broader sector remains lukewarm. Meanwhile, industrial real estate is facing headwinds, with new construction and a growing amount of sublease space putting downward pressure on rents in major markets. The hospitality sector has also seen a decline in investor confidence, largely due to the sluggish recovery in business travel.