Multifamily Buyer & Seller Sentiment Improves in Q1

Underwriting assumptions for core multifamily assets improved in Q1, while those for value-add assets slightly weakened. Buyer and seller sentiment improved for both core and value-add assets. This comes despite the Federal Reserve indicating a slower pace of interest rate cuts this year as it awaits more clarity on policy shifts by the Trump administration.

Figure 1: Quarter-over-Quarter Change in IRR Target & Cap Rates for Core Multifamily Assets

The average core multifamily going-in cap rate fell by 6 basis points (bps) to 4.83% in Q1, while the average exit cap rate fell by 3 bps to 5.00%. Core unlevered IRR targets decreased by 6 bps to 7.58%. Core underwriting metrics are now in line with where they were in mid-2023. The spread between going-in and exit cap rates for core assets increased to 19 bps in Q1. The spread is expected to increase over the next two years, with going-in cap rates compressing more than exit cap rates as the Fed continues to cut rates.

Sixteen of the 19 markets tracked for CBRE’s quarterly Multifamily Underwriting Survey had stable IRR targets for core assets in Q1. Three markets (Los Angeles, Miami and Washington, D.C.) saw reductions in their core-asset IRR targets and for the first time in three years no markets saw an increase.

Figure 2: Buyer & Seller Sentiment for Core & Value-Add Multifamily Assets

Core-asset buyer sentiment jumped to 65% positive in Q1 from 44% positive in Q4 2024, while core-asset sellers became less negative overall with 67% neutral sentiment vs. 57% in Q4 2024. Value-add buyers exhibited only slightly improved positive-to-neutral sentiment, while value-add sellers shifted to a higher concentration of neutral sentiment. Improving sentiment was seen primarily in the Sun Belt across product types, as well as in San Francisco for core assets only.

Figure 3: Buyer Valuation Underwriting Assumptions for Core & Value-Add Multifamily Assets

Underwriting assumptions of annual asking rent growth for core and value-add assets over the next three years held steady at 2.7% and 3.1%, respectively. This stability coincides with the current recovery in rent growth following a generational wave of new supply in many of our tracked markets.

While core assets saw improved underwriting metrics, value-add going-in cap rates increased by 7 bps to 5.32% and exit cap rates increased by 3 bps to 5.42%. Unlike with core assets, whose spread between going-in and exit cap rates widened in Q1, the spread for value-add assets (10 bps) declined for the second consecutive quarter. Unlevered IRR targets for value-add assets increased by 2 bps to 9.81%.

Figure 4: Underwriting Assumptions for Core & Value-Add Multifamily Assets by Market, Q1 2025

Seven markets saw going-in cap rate compression for core assets (Atlanta, Chicago, Houston, Los Angeles, Nashville, San Francisco and Washington, D.C.), while Indianapolis saw a slight increase. No markets saw movements of more than 25 bps in either direction. For value-add assets, two markets (Austin and Miami) had lower going-in cap rates in Q1 than in Q4, while four had higher rates.

While overall value-add underwriting metrics weakened slightly, buyer and seller sentiment across both core and value-add assets improved in Q1. This comes even as the market continues to seek clarity on the implications of the Trump administration’s policy changes. Throughout the rest of this year, we expect tailwinds in the multifamily sector as investors look to capitalize on improved market fundamentals, particularly in the core segment.