Fundamentals set to improve in Central Valley as future supply shrinks for the multifamily market

Central Valley multifamily market overview

The Central Valley’s multifamily market navigated a challenging supply environment in 2025 but largely held its ground. Developers completed 1,857 units, the highest annual total since 2020, with the majority concentrated in San Joaquin, Fresno, and Tulare counties. Still, the market absorbed the bulk of that new inventory without a significant deterioration in fundamentals. Vacancy rose modestly and rents continued to grow, a combination that speaks to the region’s underlying demand base. Performance was not uniform across asset classes. Class B and Class C properties demonstrated resilience, with stable vacancy and positive rent growth, while the Class A segment posted softer conditions. With fewer than 1,300 units underway and permitting at its lowest level since 2017, the supply pressure that characterized much of the 2023-to-2025 period is set to ease considerably heading into 2026.

Sales activity in the Central Valley strengthened considerably in 2025, with the transaction count rising 50% from 2024. Activity built momentum through the year, with the fourth quarter accounting for the majority of closings, suggesting improving market confidence heading into 2026. The median price per unit came in at $134,900 for the year, and cap rates compressed from 5.8% in 2024 to 5.5%, a meaningful shift given where financing costs have been. The average transaction size fell to roughly 100 units from 141 units in 2024, reflecting a market where buyers continued to favor smaller, lower-risk deals. Class C assets and 1970s- and 1980s-vintage properties dominated activity, accounting for the vast majority of closings. San Joaquin commanded the highest pricing in the region with an average of $225,500 per unit, while Fresno led in transaction count with eight deals. Kern County saw steady trading as well, though at more modest pricing and wider cap rate ranges, consistent with its older inventory base.

Looking ahead:

Operational conditions in the Central Valley are expected to improve modestly in 2026, supported by a meaningfully thinner supply pipeline. With deliveries forecast to fall 35% from 2025, the market will face considerably less competition from new inventory than it has over the past year. That reduction in the competitive impact of new supply should allow vacancy to ease to 4.3% by the close of 2026. Rent growth is projected to firm up alongside vacancy improvement, with asking rents expected to grow 2.0%, marking the strongest annual increase since 2023. Class A assets in particular stand to benefit as the concentration of new deliveries subsides and elevated vacancy in that segment works off. On the demand side, employment growth is forecast to accelerate to roughly 10,000 net new jobs.

Investment activity in the Central Valley is positioned to strengthen in 2026. The fourth quarter's closing momentum, combined with cap rate compression and an improving operational outlook, should support a more active investment sales market throughout the year. Buyers who moved early in 2025 on smaller, stabilized properties were well positioned, and these assets are likely to remain attractive as long as financing costs stay elevated and bid-ask spreads on larger deals remain wide. Fresno and San Joaquin are likely to remain the most active markets given their depth of inventory and demonstrated buyer interest, while Kern County could see increased attention. Cap rates are expected to hold in the mid-5% range near-term, with potential for modest compression in the back half of the year if the Federal Reserve resumes cutting interest rates.<

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