Multifamily investment remains a hot commodity in the US

While some cities outperform, demand for apartments is likely to outpace supply across the US for the foreseeable future, writes Kyle Hagerty.

Multifamily investment is a strategy that offers a steady source of rental income, but changing demographics, evolving lifestyle preferences and shifting urbanization trends across the US have made finding a path to higher profits more difficult.

Using the latest data and analysis, investors routinely attempt to break down the hottest multifamily markets for private equity investment across the US.

Affordability driving demand

In 2022, the US apartment market suffered a significant demand loss coupled with a surge in new deliveries, creating volatility in several key markets, according to data from Real Page analytics. This year, demand has returned to more normal levels through the first three quarters of 2023. Job growth, urbanization trends and rising interest rates across the US have kept the multifamily asset class churning while other commercial real estate investment sectors falter.

“There’s a typical wave of demand that goes towards the for-sale, single-family market, but that pipeline has changed materially,” said Nikolay Bochilo, executive vice-president, investments at Bell Partners. Bochilo explains that current high interest rates are raising the barrier to entry for first-time homebuyers, keeping maturing renters in apartments. “Those apartment renters that would transition into home ownership, that bar has risen at a faster rate than affordability.”

Multifamily remains one of the most sought-after investment classes in commercial real estate because, unlike other sectors, demand shows no sign of slowing down. Office investments have struggled with economic headwinds as workers remain at home. Meanwhile, multifamily has benefited from economic tailwinds driven by a strong national job market and a nationwide housing affordability crisis made worse by rising interest rates. Multifamily continues to garner the lion’s share of commercial estate investment, accounting for 35 percent of all deals in the second quarter of 2023, according to data from global commercial brokerage firm CBRE.

“When you look at the growth in demand for apartment rentals, it’s related to housing affordability challenges across the country,” explains Shelton Weeks, professor of real estate at Florida Gulf Coast University.

Together with colleagues at the University of Alabama and Florida Atlantic University, Shelton tracks rental markets across the country by utilizing past leasing data from Zillow’s Observed Rent Index, showing the difference between expected rents and ­actual rents to highlight where investors can expect a rent premium or discount.


New York City has long been considered the most active multifamily market in the country because of the city’s strong job market and a constant influx of newcomers ensuring consistent demand. Combined with record-high housing costs that are pushing rents ever higher, the Big Apple retains its reputation for multifamily investment dominance despite policy pushes across the five boroughs for more rent ­control.

Competition among renters for the perfect place remains red hot. Listings across the city have received nearly twice as many inquiries than before the pandemic, according to local media reports that say average asking rents across the city shot up nearly 15 percent, reaching a record $3,344 per month this spring.

Developers are racing to deliver new units, but the rising cost of capital and land is pushing projects further out of the city’s urban core. The bulk of new deliveries are coming in Brooklyn and Queens as rental rates in Manhattan hit new peaks at $4,400 monthly.

Now Brooklyn and Queens are setting record highs for rents as well. Finding a new apartment in New York is difficult with historically high numbers of renters choosing to sign renewals. Manhattan multifamily buildings continue to sell, with free-market multifamily assets backed by the city’s 421a tax exemption predictably attracting the most investor interest.

West Coast

New York is a city plagued by a lack of housing affordability, but California is grappling with the same problems across the entire state. New housing construction in Southern California particularly is “among the lowest levels in the US on a per capita basis,” according to the University of Southern California’s Lusk Center for Real Estate. The LA metropolitan area has only half as much new housing in the pipeline as other growing cities like Houston or Dallas, despite being 70 percent more populous.

Crippling housing costs and steadily rising rents may be bad news for residents, but it is fueling one of the hottest multifamily markets in the country. The issue for developers and investors is finding the right deal. New construction is heavily concentrated west of Downtown Los Angeles in neighborhoods like Westlake, Koreatown and Silver Lake.

Certain cities may be slowing down across the immense metro area, but overall rent growth and record occupancy levels abound. Rising interest rates have stunted sales volumes just as in practically every other major city, but have not meaningfully changed the market’s fundamentals. For the foreseeable future, Southern California will remain one of the most profitable locations to own a multifamily asset.

Like New York, San Francisco and the surrounding Bay Area in Northern California benefit from a large influx of new arrivals and significant land-use regulations limiting new construction.

Higher barriers to entry are a path to higher profit if developers and investors can make a deal work. The city’s commitment to single-family zoning often pushes developers and investors to look for opportunities throughout neighboring cities, creating an enormous pipeline of new units. Nearly 30,000 units are under construction across the region, more than double historical averages, according to research by global brokerage firm Cushman & Wakefield. One-third of all new deliveries are slated for Santa Clara County, south of San Francisco’s core.

Though the tech sector has slowed in recent months with layoffs hitting major employers, the Bay Area multifamily market remains remarkably strong and fundamentals remain well above national averages. Asking rents in San Francisco are second only to New York, meaning the desperately needed new supply will be delivered into a lucrative market.

“As regions, there is considerable growth in large cities like San Francisco and New York. However, it’s worth keeping an eye on emerging markets in Texas and Florida, which offer affordability and robust, steady job growth,” notes Itzhak Ben-David, academic director of the Ohio State University Center for Real Estate.


Miami remains one of America’s most competitive multifamily markets despite seeing a dip in population for the first time in 50 years. Renters in Miami are having a difficult time finding units as the cost of housing skyrockets. Miami’s fundamentals are backed by a relatively slow pipeline of newly built apartments, representing only 1 percent of the city’s existing housing supply.

“It’s worth keeping an eye on emerging markets in Texas and Florida, which offer affordability and robust, steady job growth”

Itzhak Ben-David,
The Ohio State University Center for Real Estate

That has caused nearly three-quarters of Miami renters to renew leases ­instead of finding a new home, keeping occupancy near record levels.

Demand in Miami is not limited to job growth and employment, benefiting from a large swath of retirees and out-of-state residents chasing their Florida dreams in Broward and ­Miami-Dade counties.

Florida’s lagging median income, nearly $20,000 less than the national average, exacerbates affordability issues in Miami, Tampa and Orlando, compared to larger cities like New York City and San Francisco. Strong rental demand over recent years has pushed average rents over the average monthly mortgage payment, according to research by Gay Cororaton, chief economist at Miami Realtors.

Sun Belt

“We’re seeing a lot of growth in the Sun Belt, going from Phoenix through Texas to the Carolinas,” says Sandy Schmid, director of acquisitions at Star Properties. “Cost of living is low in Sunbelt locations, they’re tax-friendly environments and have great access to the outdoors so the lifestyle component is there.”

The US Sun Belt is coming off a record run, leading the nation in rental growth, construction and absorption during the pandemic. Some fear the magic may be fading though, with over a million new apartments under construction across the region. Analysts predicted flat rental growth through 2023, but concerns over a cooling market caused by oversaturation have not come to fruition just yet. Only Las Vegas and Phoenix have gone flat, but they appear to be an exception to other cities throughout the region.

Data shows analysts are overstating the impact of supply and understating demand, something which happens practically annually, according to Real­Page Chief Economist Jay Parsons. With so much capital shifting to the Sunbelt, concerns are elevated for macroeconomic headwinds, but so far the only real issue is short-term microeconomic fluctuations in limited pockets of new Class A development. Rapid rent growth in Sun Belt cities has not lost ground to larger, primary and gateway coastal markets in relative affordability, maintaining the cost-of-living advantages in Sun Belt cities driving demand.

Nationwide multifamily occupancy rates over 95 percent are something office owners can now only dream of, and multifamily rents, even where flat, remain high across the board. As of the second quarter of 2023, 58 of 69 multifamily markets tracked by CBRE show positive absorption, a significant increase. Positive absorption is highly correlated with new completions, showing signs of strong unmet demand.

As long as job growth remains robust, and until larger cities make progress toward solving housing affordability, the demand for new apartments will outpace supply in practically any city across the country, keeping multifamily demand fundamentals strong for the long term.