“Fasten your seatbelts … it’s going to be a bumpy night.” — Bette Davis, All About Eve

First delivered in 1950 from a penthouse apartment staircase, Bette Davis’s declaration feels especially fitting in today’s multifamily environment. After a year marked by volatility, shifting fundamentals and an evolving supply-demand balance, the sector enters 2026 at a critical inflection point. Fasten your seatbelts, indeed.

Apartment rental demand posted its third-strongest year on record in 2025, capped by the strongest fourth quarter. The rental market has remained resilient into early 2026, with net absorption trending positive despite macroeconomic uncertainty, geopolitical instability and elevated supply in many markets.

After peaking at a 50-year delivery high in 2024, new supply is now contracting across most markets. Deliveries fell 24% through the first 10 months of 2025 and are projected to decline further into mid-2026, signaling a broader market reset.

As construction activity slows, however, robust demand has begun to absorb elevated supply, pushing vacancy, currently estimated at 9.3% nationally, toward stabilization and improving underlying fundamentals. Even amid recent market volatility, multifamily led all asset classes in Q4 2025, accounting for 34% of total CRE transaction volume. The sector also continues to attract outsized investor interest, with buyers outnumbering sellers by nearly 2:1 across most markets, a signal of sustained conviction in the asset class.

High home prices, economic uncertainty, and elevated interest rates continue to push many consumers out of the for-sale market, reinforcing demand for rental housing. Twenty-five years ago, the median home price nationwide was $165,000. Nearly halfway through 2026, it has risen to approximately $402,000. While renting was once a steppingstone to homeownership for many individuals, couples, and families, today many are seeking long-term rental opportunities. This is in part because the average monthly mortgage payment is estimated to be $800 higher than renting. Reflecting these headwinds, the National Association of Realtors reports sales of single-family homes hit a 30-year low in 2025.

As demand for more affordable housing has risen, many markets have experienced a corresponding increase in new development, resulting in oversupply. This imbalance has contributed to higher vacancy rates and slower net absorption throughout much of 2025, as new deliveries outpaced leasing activity. Multifamily vacancy increased by 5% in Q2 2025.

Vacancy is expected to rise further in the first half of 2026 before stabilizing, with stronger leasing activity anticipated to begin in Q3. This surplus has also placed pressure on rental growth: nationwide rents increased by less than 1% in 2025 but are expected to improve as the pace of new supply moderates in 2026.

Looking ahead, stability and growth in 2026–2027 will depend on both maintaining occupancy through consistent pricing, high-quality services and strong property management, and driving new leasing through targeted offerings and incentives.

The Trends and Exceptions

Despite broader market headwinds, select markets continued to outperform in 2025 most notably in the Sun Belt. Defined by states such as Florida, Arizona, California and North Carolina, this region continued a thirteen-year positive trajectory of absorption rates and year-over-year rental growth.

KBS capitalized on this momentum with the sale of Park Central Apartments, a 286-unit luxury high-rise in the North Hills area of Raleigh, North Carolina. The asset was sold for approximately 2.4 times the original investment. As one of the first high-rise multifamily towers in Midtown Raleigh, Park Central Apartments helped introduce a live/work hub strategy that helped shape the submarket’s evolution.

According to Marc DeLuca, CEO and regional president, Eastern U.S., the transaction underscores KBS’s ability to identify and develop lifestyle-oriented environments that create long-term value across asset classes. Park Central Apartments was envisioned as a cornerstone for the district’s next phase of density and urbanization. Through active asset management and strategic placemaking, the area is a walkable, mixed-use project that resonates with residents and enhances the surrounding community, including KBS’ adjacent office project, Bank of America Tower, which is operating at 95% occupancy today.

As new construction pipelines continue to constrict in the first half of 2026 due to elevated construction costs, labor shortages, high interest rates, and a lack of limited partners’ capital for ground-up development, the Sun Belt, in particular, is positioned to absorb vacancy at a faster pace than most markets, supporting rent growth through the end of the year. The sustainability of any long-term recovery will ultimately depend on broader consumer financial health rather than the resilience of any single market or income segment.

Strong Occupancy Supports Stability as Rent Growth Rebalances

Despite sustained demand, rent growth has remained constrained. Nationwide rents increased by approximately 1% in 2025, with gains largely concentrated in markets with limited new supply. While 60% of growth submarkets were in California, oversupply across portions of the Sun Belt is expected to continue suppressing rent growth into 2026.

As conditions normalize, momentum is gradually shifting toward more affordable regions, like the Midwest and select Southeastern markets, will continue to be attractive alternatives. These markets benefit from favorable population growth trends, lower cost of living and improved accessibility, with increased deliveries in 2024 expanding supply and enhancing affordability.

Renters are renewing existing leases at historically high levels, representing 57% of all leasing activity in 2025. Renewals reduce turnover costs, diminish the risk of long-term vacancies, and dramatically outpace new leases for rent growth. Because most reported rent metrics focus on new-lease pricing, they can understate true performance. In several markets, negative new-lease growth is offset by renewal increases, resulting in positive blended rent growth – a more accurate measure of asset performance heading into 2026.

It’s reasonable to expect rents will start growing again in Q3 2026 and into 2027. In a more competitive leasing environment, operational execution, including property management, resident services, and talent retention, will be critical to maintaining occupancy and capturing new demand.

Investment Activity Strengthens Amid Market Realignment

Despite uncertainty in the market, investment in multifamily assets rose 9.1% in Q4 2025, making it the strongest quarter for investment in three years. This activity has been concentrated in high-quality, supply-constrained submarkets such as Highland Park in Dallas, followed by Manhattan in New York City, and Century City in Los Angeles.

Refinancing challenges continue to shape the investment landscape. Multifamily assets accounted for the largest share of loan extensions in 2024–2025, with $96 billion in loans extended into 2025 and $310 billion maturing at year-end, according to the Mortgage Bankers Association. Given current conditions, many of these loans are expected to be pushed further into 2026–2027 so investors will be focused on assets with lower replacement costs, as well as opportunities tied to distressed properties with near-term loan maturities.

Against this backdrop, multifamily remains one of the most resilient and attractive investment sectors, supported by strong underlying demand and long-term fundamentals.

Looking Ahead

Overall, the multifamily sector continues to demonstrate resilience, with strong rental demand and sustained absorption. With a slowing development pipeline and high demand from investors, buyers and renters, stronger asset performance is anticipated for 2026 into 2027. However, performance will significantly vary by market and asset type. Favoring well-located hubs that are walkable, with access to employment and daily conveniences.

Shifting renter demographics are also reshaping demand. Larger units, modern amenities and access to mixed-use environments, particularly those anchored by grocery, healthcare and family-oriented services, are becoming key drivers of leasing decisions as renters grow older and are more family-oriented.

Although rent growth remains constrained in the near term due to economic uncertainty and localized oversupply, underlying fundamentals are stabilizing. As excess supply is absorbed, markets are expected to regain pricing power, supporting a gradual acceleration in rent growth beyond 2026.

Near-term conditions may remain uneven, but the long-term outlook remains constructive. As the industry navigates a period of transition while the “night” may feel uncertain, disciplined strategy and strong fundamentals position the sector for a brighter path ahead.

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