Multifamily cap rates are returning to pre-pandemic levels, reigniting investor interest as property values stabilize and transaction activity picks up. A new report from American Landmark suggests the sector is poised for a moderate recovery driven by strong apartment demand and a steady rise in deals.

American Landmark found that average cap rates and transaction volumes expanded in mid-2024 while interest rates remained elevated. Market cap rates reached 5.9% in Q2, up from 5.5% in Q2 2023. Despite some variation across locations and property quality, the study found that 3-star properties averaged cap rates of 6.2%, while 5-star properties averaged 5.3%.

Cap rate adjustments have yet to fully translate into stabilized valuations, with some properties still lagging behind in appraisals that reflect current market dynamics. This delay poses uncertainty for some investors, though others view it as an opportunity to acquire assets at favorable prices before valuations catch up.

Multifamily demand remains strong in job-rich regions, which American Landmark expects to lead to moderate price growth. Transaction activity is also recovering, with sales volume reaching $16 billion in Q2—marking the first quarterly increase in two years. The uptick in multifamily transactions signals renewed optimism among investors, who are encouraged by stable vacancy rates and potential improvements in economic conditions.

American Landmark anticipates that the sector’s recovery will be further supported by sustained rental demand and potential Federal Reserve policy easing. These findings come on the heels of reports from the Mortgage Bankers Association and CBRE, which found a sizeable increased in lending for multifamily transactions in Q3.

As cap rates stabilize, multifamily markets are expected to segment based on local demand and inventory conditions. High-demand markets will likely see stable valuations and moderate growth, while oversupplied areas could experience downward pressure. Recent interest rate cuts are expected to ease borrowing costs in the short term, though valuations may take longer to adjust, shaping the trajectory of multifamily transactions in the months ahead.