REAL ESTATE NEWS

Multifamily still has a way to go before it can be considered healthy, especially in states where apartments have been overbuilt. CBRE?s 2026 market outlook for the sector offers a prospect of low rent growth and a focus on occupancy, continuing concessions, and concerns about the impact of rent controls some cities are considering.

The report points out that high home prices ? including a 105% premium to buy versus rent ? are bolstering the multifamily market, especially since many existing homeowners pay less than 4% in interest. A weak job market with low turnover is unlikely to encourage new household formation.

At the same time, landlords are choosing to maintain occupancy rather than raise rents on new leases. They will continue to offer incentives to new tenants, especially since renewal rates are historically strong and account for 57% of all leasing activity. ?Renewals dramatically outpace new leases for rent growth,? the report stated. In addition, the overall 4.4% vacancy rate is expected to rise over the next few quarters as demand remains below supply.

Oversupply in the Sunbelt and Mountain regions means many areas are unlikely to achieve growth in asking rents until late this year. Nevertheless, in the long term, these regions are expected to outperform for job creation, inbound migration and multifamily performance, the report said, adding that this would support future investment. The vacancy would also decline as more units are absorbed.

To make matters even more challenging, the report noted that, if implemented in some cities, rent control is likely to discourage new investment and may constrain market-level liquidity over the next few years, while disadvantaging new renters.

Cap rates are expected to remain stable in 2026, followed by incremental compression in later years. ?Interest rate and inflation stability, competitive debt markets, lower economic uncertainty and recovering investment volumes will underpin this outlook for cap rates,? the report predicted.

It argued, however, that basing rent growth figures on asking rents for new leases understates the actual performance of multifamily properties. ?Blended rent growth is expected to remain higher than asking rent growth for new leases alone.

?Blended rent growth represents the overall rent growth in a given market that is determined by combining a weighted average from both renewal rent growth and effective asking rent growth,? the report explained, adding that the difference is largest in markets heavily dependent on domestic migration and employment growth. Examples include Austin and Denver, where asking rent growth is projected to remain negative in 2026, yet blended growth will turn positive.

?Blended rent growth will remain a key metric for underwriters, with renewals accounting for a larger share of all leasing activity,? the report predicted

But the question many CBRE executives are hearing most is what is happening with the ?supply cliff? or ?supply step-down?, which has been described as ?wait for all of the inventory to finish being built and get stabilized.? In an online interview, Travis Deese, director for Americas multifamily research at CBRE, said it was more like a supply slide, and that the real drop-off would occur in 2027 when supply would decline and things would start to normalize and rent growth would resume.

Deese noted that this year, the most new jobs would be generated in the Sunbelt states, along with high levels of apartment demand, yet some of the worst rent growth until the second and third quarters. The Northeast, however, would still see good rent growth, even with low job growth and absorption because it did not overbuild. That would also be the case in gateway markets like San Francisco and Chicago.

Source: GlobeSt/ALM