Apartment Metrics Improve in Q3 for Core and Value-Add

Following the first rate cut from the Federal Reserve in two years in September, metrics for both core and value-add multifamily assets improved across the board in the third quarter, CBRE reported Wednesday. The gains were reflected in cap rate compression for core and value-add properties and an increase in underwriting assumptions for annual asking rent growth in core assets, the first such increase since 2021.

“Although underwriting assumptions are changing more quickly in some markets than others, we expect less variation ahead as borrowing costs and cap rates trend down in response to the Fed’s rate-cutting cycle,” wrote CBRE’s Richard Barkham, Matt Vance and Travis Deese.

Vance noted that the Q3 data were collected in late September and early October, and thus reflect the Fed’s latest move. “Despite the recent fluctuations in interest rates, current market conditions appear stable,” he said. “While it is difficult to say how cap rates and asset pricing may respond to continued interest rate volatility this year, there are certain multifamily product types and geographies that will be more and less susceptible to changes in interest rates, borrowing costs and the resulting supply and demand of investment activity.”