National + Apartments | April 17, 2023

Multifamily Cap Rates Have Begun to Stabilize

For the first time since the Federal Reserve began raising interest rates in early 2022, underwriting assumptions for prime multifamily assets are beginning to stabilize, CBRE reported. The average multifamily going-in cap rate increased by 23 basis points to 4.72% in the first quarter if 2023.

This follows increases of 39, 36 and 38 bps in the three preceding quarters and marks the first significant quarterly deceleration in cap rate expansion since the Fed began its latest round of rate hikes. Similarly, other metrics such as unlevered IRR targets, exit cap rates and rent growth also decelerated in Q1.

Since Q1 2022, the average going-in cap rate has expanded by 136 bps and now eclipses the pre-pandemic average by 51 bps. “Though further expansion is expected, underwriting assumptions for prime multifamily assets will likely peak in the second half of 2023,” according to CBRE.

Pictured: Austin, TX, which has had the lowest risk requirements on an underwriting basis for six consecutive quarters among the 15 major multifamily markets tracked by CBRE.

Connect

Inside The Story

CBRE

About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

Order Reprints