Multifamily Fundamentals Strengthen, but a Wave of Debt Maturity Looms
Renting remains more affordable than buying in nearly every market across the country, prompting a large number of tenants to renew their leases. The increasing cost of homeownership, driven by mortgage rates nearing 7%, is driving this trend, causing existing single-family home sales to plummet to a 30-year low last year, according to data from the National Association of Realtors.
The strength of the rental market consistently brings investors to the table, making multifamily the leading asset class for volume and driving sales gains for 11 consecutive months, according to Colliers’ May multifamily report. However, pent-up buy-side demand continues to be met with few willing sellers and investors are showing a preference for acquiring assets below replacement cost, the report noted.
Cap rates remain in the 5% range, which often leads to negative leverage, Colliers said. Distress will be an increasingly viable target for investors as assets trade below their prior sales price and substantial debt maturities are on the horizon, although lenders continue to extend loans. Multifamily posted the most extensions of any asset class from 2024 into this year. Nearly $100 billion in multifamily loans were pushed forward to 2025, with $310 billion in the segment set to mature this year, according to Mortgage Bankers Association data.
“Given the current market conditions, many of these loans are expected to be pushed out to 2026, repeating the cycle. However, at some point, they will need to be dealt with,” said Colliers. “If interest rates do not decline significantly — and the forward curve suggests the 10-year won’t be plummeting — sellers will have no choice but to come off the sidelines and part with their assets.”
Colliers said that as multifamily fundamentals firm, accelerating rent growth should bring more capital to the table.
New supply will slacken somewhat this year, with 150,000 fewer deliveries expected, setting the stage for stronger occupancy and rent recovery in the quarters ahead, the CRE firm predicts. Currently, occupancy sits at 95.7%.
Coupled with less supply, continued strong demand will push rents higher, with prices already up around 1% year-to-date compared with last year and more gains expected by the end of the year if the job market remains stable. Markets with less development are leading the country in rent growth, with Kansas City, Chicago and Detroit fitting this description. Meanwhile, high-supply markets like Austin, Denver, Phoenix and San Antonio are lagging.
“Rebalancing fundamentals make high-growth markets appealing, as their long-standing demographic advantages, such as strong migration patterns and broader affordability, continue,” said Colliers. “Therefore, a path to rent growth and a potential rent pop in 2026 and 2027 is not an unreasonable expectation.
Source: GlobeSt/ALM