Quarterly research, market commentary, and technical primers from the Brickvests team. Drawn from active mandates across global real estate capital markets.
A current read on rent growth, cap rate, expense, and vacancy assumptions across the institutional multifamily space, drawing on first quarter 2026 transaction data and the firm's mandates over the spring underwriting cycle.
Read BelowUS multifamily has entered Q2 2026 on more stable ground than at any point in the past three years. Cap rates have stabilised after a prolonged widening cycle. Investment volume has rebounded to a three year high. Buyer sentiment has shifted from defensive to selectively constructive, with institutional capital actively pursuing well located value add opportunities at meaningful discounts to replacement cost.
However, this is a recovery in pricing and sentiment, not yet a recovery in operating fundamentals. Q1 2026 effective rent growth came in at 0.2 percent nationally, the weakest first quarter since 2012. Vacancy remains elevated at approximately 8.5 percent. The path to NOI growth runs through supply absorption, which is now underway but not yet complete in oversupplied Sun Belt submarkets. This report sets out where underwriting standards have moved in response.
Q1 2026 national rent growth registered 0.2 percent, the weakest March reading since 2012. The composition of that headline number matters. Class A product, where roughly 85 percent of recent completions are concentrated, posted only 0.2 percent growth. Class C posted 3.4 percent. Class B sat between at 1.7 percent. This is a defining feature of the current cycle. Premium product is absorbing the full weight of the supply correction while older workforce housing benefits from a captive renter base and limited new competition.
Year one underwriting assumptions across recent mandates reflect this. For Class A acquisitions in oversupplied Sun Belt markets, year one growth is being underwritten in a negative 1 to positive 1 percent range. For stabilised primary markets, 1.5 to 2.5 percent. For supply constrained submarkets and Class B value add, 3 to 4.5 percent. Long term stabilised rent growth is settling at 2.5 to 3 percent across most geographies, a permanent step down from the 3.5 to 4 percent standard that characterised 2021 and 2022 underwriting.
Blended rent growth, which combines new lease and renewal performance, has emerged as a key underwriting metric. Operators are prioritising occupancy over rate, which is producing renewal rent growth that meaningfully exceeds asking rent growth in markets where new lease economics have softened. Underwriting that ignores this dynamic understates achievable revenue in the current operating environment.
After two years of widening, cap rates have stabilised across most major markets. The H2 2025 cap rate survey from leading capital markets advisors recorded "no change" as the dominant response across nearly every segment. Going in cap rates for Class A stabilised assets in primary markets have settled in a 4.5 to 5.25 percent range. Sun Belt suburban Class A sits in the 5 to 5.75 percent range. Class A value add and Class B product trade meaningfully wider, with mid sized assets in secondary markets transacting in the 6.5 to 7.5 percent range.
Exit cap underwriting has compressed back toward entry caps as the market has stabilised. The standard institutional discipline of underwriting exit caps 50 to 75 basis points above entry caps remains intact, but sponsors are no longer pricing in further widening over the hold period as the base case. For deals closing in Q2 2026, exit caps in primary markets are being underwritten at 5 to 5.75 percent, secondary Sun Belt at 5.75 to 6.5 percent, and tertiary at 7 percent and above.
A critical underwriting point. Properties traded at sub 5 percent cap rates in this environment require positive leverage to make sense, which depends on debt costs in the high 5 to low 6 percent range. Sponsors closing on negative leverage trades must articulate a credible NOI growth thesis that returns the deal to positive leverage within twelve to eighteen months. Limited partners reviewing 2026 vintage raises are scrutinising this dynamic closely.
Operating expense ratios continue to run at elevated levels relative to the prior cycle. Insurance remains the headline concern, with premiums in catastrophe exposed markets having risen 30 to 60 percent over the past three years. Property tax reassessment following acquisition continues to materially erode year one operating margins for sponsors who underwrite on trailing twelve month expenses without stress testing reassessment risk.
Current underwriting standards include expense ratios of 42 to 47 percent of effective gross income for stabilised properties in moderate expense jurisdictions, and 50 to 55 percent for properties in high tax and high insurance markets. Year one stabilised operating expense growth is being underwritten at 3.5 to 4 percent against a 2.5 to 3 percent long term rent growth assumption. This structural compression of NOI growth across the hold period is the single biggest change versus prior cycle underwriting and the variable most often missed by sponsors recycling models from 2021 and 2022.
National multifamily vacancy is forecast to stabilise at approximately 8.5 percent through 2026 before declining gradually toward 7.5 percent by 2030. The inflection point, where absorption sustainably overtakes deliveries, is expected in the second half of 2026 at the national level and as late as 2027 for the most oversupplied Sun Belt markets including Phoenix, Austin, Denver, and Nashville.
Underwriting standards reflect this trajectory. Stabilised vacancy is being underwritten at 6 to 8 percent for most institutional acquisitions, with newly delivered product assuming 12 to 24 months to reach stabilised occupancy depending on submarket supply conditions. Bad debt has settled at 1 to 2 percent of gross potential rent in standard jurisdictions, with tenant friendly markets in California and the Northeast requiring 2 to 3 percent.
The widening gap between asset values and replacement costs is the defining opportunity in 2026. With asset values having reset 20 to 30 percent below the 2022 peak and replacement costs having risen nearly 40 percent since 2020, the discount to replacement now stands at a level last seen in 2012. In Sun Belt markets where construction pipelines are contracting 40 to 50 percent, well capitalised investors acquiring stabilised assets at current pricing stand to benefit from the supply correction as it converts into firmer occupancy and rent growth through 2027 and beyond.
Class B and workforce housing continue to offer the most defensible thesis. The renter base is captive, new supply targets premium product almost exclusively, and rent growth is currently outpacing the Class A segment by 100 to 300 basis points. Value add execution in this segment, anchored to disciplined renovation budgets and conservative rent premium assumptions, is producing some of the most consistent returns observable in the current cycle.
Development feasibility, by contrast, remains difficult to underwrite at scale. Hard costs remain elevated, construction debt is restrictive, and stabilised yields on cost in most markets continue to sit below acquisition cap rates. Ground up product currently makes sense only in submarkets with severe supply constraints and a credible path to twelve to eighteen month lease up, supported by either build to suit demand or a specific operator advantage.
US multifamily in Q2 2026 is a market that has finished resetting on capital costs and is now midway through resetting on operating expectations. Discipline matters more than at any point in the past five years. Sponsors who underwrite to current rent and expense realities, who articulate a credible operating thesis, and who can hold through the supply absorption window will be positioned strongly for the recovery phase. Those who recycle 2021 and 2022 assumptions onto 2026 acquisitions are underwriting to a market that no longer exists.
For tailored discussion of these assumptions in the context of a specific transaction, deal review, or capital raise, contact the firm directly. All discussions are subject to standing confidentiality.
Filter by topic area. New publications released quarterly, with occasional market commentary in response to material shifts in conditions.
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