For the first time since the Federal Reserve began raising interest rates in early 2022, underwriting assumptions for prime multifamily assets have begun to stabilize, according to CBRE. The average multifamily going-in cap rate increased by 23 basis points to 4.72% in Q1 2023, following increases of 39 bps, 36 bps and 38 bps in the three preceding quarters – marking a significant deceleration from prior quarters’ expansion since Fed rate hikes began. Other metrics such as unlevered IRR targets, exit cap rates and rent growth also saw deceleration during this period.
Since Q1 2022 when these changes started taking effect ,the average going-in cap rate has expanded by 136 basis points compared with pre-pandemic averages – now standing at 51bps higher than before COVID hit markets around the world . CBRE predicts that further expansion is expected but underwriting assumptions for prime multifamily assets will likely peak sometime during H2 2023.
Austin TX continues its streak of having lowest risk requirements on an underwriting basis among 15 major US cities tracked by CBRE over six consecutive quarters now .
