This year’s data show that while multifamily completions moderated from 2024’s elevated pace, the sector’s shift toward larger properties continued. At the same time, larger has not necessarily meant taller, as lower-rise buildings continue to account for most new multifamily completions.
Cap Rates Climb Again as Originations Begin Rebounding
The small multifamily outlook continues to brighten as more signs indicate a normalization has already begun. In the second quarter, originations activity and borrowing conditions improved as completions sat at a five-decade high, Arbor’s Small Multifamily Investment Trends Report Q3 2024, developed in partnership with Chandan Economics, shows. While the subsector’s fundamentals are trending up, it still has room for growth when interest rate relief arrives.
Key Findings:
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Small multifamily originations were on pace for a 7.9% annual increase in 2024.
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Cap rates reversed a first-quarter decline, rising to 6.1%.
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Credit conditions remained conservative as debt yields rose to 9.9%.