In September, the Federal Reserve made its first rate cut in two years. As a result, both core and value-add multifamily assets saw improvements across the board in the third quarter, according to CBRE’s report on Wednesday. This was reflected in lower cap rates for these types of properties and an increase in underwriting assumptions for annual rent growth for core assets – marking the first such increase since 2021.
CBRE analysts Richard Barkham, Matt Vance and Travis Deese wrote that while there may be some variation among markets as borrowing costs and cap rates decrease due to the Fed’s rate-cutting cycle, they expect this trend to continue with less variation going forward.
Vance also noted that their data collection period for Q3 was at end of September/early October when reflecting on recent fluctuations in interest rates. He stated that despite these changes, current market conditions seem stable. However he added that it is difficult to predict how cap rates and asset pricing will respond if interest rate volatility continues throughout this year. Certain types of multifamily properties may be more or less affected by changes in interest rates which can impact investment activity based on supply and demand factors.
Overall though,the latest data shows positive signs of improvement within apartment metrics during Q3 especially for core assets as well as value-add ones.
