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.