Midyear 2022 National Multifamily Outlook: Strong Demand Continues but More Modest Activity Levels Expected  


Buyers and sellers adjusting second-half expectations driven by mixed economic conditions, increasing balance between supply and demand.

MINNEAPOLIS (August 25, 2022) – The multifamily market recorded strong investor demand for properties across the U.S. through the first half of 2022. More modest activity is expected in the second half, according to the Midyear National Multifamily Outlook released by Northmarq and authored by Research Director Pete O’Neil.

Despite volatility in the economy and the increasing costs of capital, investment activity in the second quarter was nearly identical to the first three months of the year. While interest rates have increased, cap rates have remained in a tight range, averaging approximately 4 percent. Cap rates will likely trend higher in the second half. Investors continue to target high-growth metro areas like Dallas-Fort Worth, Atlanta, and Phoenix—markets that recorded the highest sales velocity in the first half of this year. 

Buyers and sellers are expected to undergo a period of price discovery in the coming months, as all parties adjust to the reality of higher borrowing costs and the potential for a slower pace of economic growth. With new construction deliveries increasing, vacancy rates are expected to remain close to current ranges or creep slightly higher and investors will closely monitor absorption of new projects to shape their approach to acquisitions.

“While there are many moving parts influencing multifamily markets across the country, the broad takeaway is that conditions are very strong and should remain healthy through the remainder of 2022,” said Trevor Koskovich, president – Northmarq Investment Sales.

The special report identifies four additional trends:

  1. The Economy - Trends in the economy have been mixed to this point in 2022. The labor market has remained tight, and unemployment is near all-time lows. Inflation has dragged down consumer sentiment and is prompting the Federal Reserve to raise rates.
  2. Rent Trends - The first half of 2022 recorded 9.8 percent rent growth year-over-year. Additional rent growth is forecast to continue for the second half, but the pace of increases is expected to be more modest.
  3. Investment Market - The investment market remained active in the first half, and cap rates averaged 4.2 percent as investors continued to allocate capital to multifamily assets. The start of the third quarter has recorded some cooling as buyers and selling adjust to new pricing.
  4. Financing Climate – Multifamily mortgage originations began 2022 on an upswing, with the Mortgage Bankers Association reporting a 57 percent year-over-year spike in the first quarter. As market conditions shifted in the second quarter, the agencies became more aggressive in underwriting transactions.  In recent months, debt funds have changed course, generally widening spreads and decreasing the amount of leverage in transactions.

Against the backdrop of a mixed national economic outlook, the multifamily market is outperforming the economy as a whole in 2022. Renter demand for apartment properties is expected to remain healthy throughout the remainder of the year, assuming the labor market remains tight. In the investment market, buyers and sellers are adjusting price and cap rate expectations to reflect the new cost of capital. On the development front, several markets are expected to record steep increases in deliveries in the second half of this year as projects stalled by COVID and disruptions in the supply chain in 2020 and 2021 are being completed. This will bring supply and demand closer to equilibrium and settle the market into a period of more modest growth.

See Northmarq's full report here.