Multifamily Cap Rates Signal Turning Point for Investors Article originally posted on Globe St. on September 29, 2025 Multifamily cap rates appear to have stabilized, ending a two-year cycle of steady increases and raising the prospect that the sector could be at the edge of an upswing, according to CoStar’s National Director of Capital Markets Analytics, Chad Littell. While most investors remain focused on the impact of interest rates, it is actually rent growth that has provided the most reliable signal for shifts in cap rates throughout recent cycles—a key theme echoed in Littell’s outlook as the industry heads into 2026. Littell notes that the relationship between year-over-year rent growth and cap rates is central to understanding today’s market. “Rent growth is a very strong indicator of the direction of cap rates,” Littell tells GlobeSt.com. He noted that during periods when prices accelerate, such as 2007, cap rates decline as investors bet on rising future income, driving up asset values. By contrast, when in deceleration or the category turns negative, cap rates rebound. Littell argues that the recent stabilization in cap rates coincides with rent increases bottoming out around one percent, with forecasts anticipating an eventual lift back to the two-and-a-quarter to two-and-a-half percent range over the coming 12 to 18 months. Market evidence supports this view, especially among high-quality multifamily assets trading at sub-5% cap rates in competitive locations—a trend that has emerged since late 2024. Littell attributes much of this cap rate steadying to an increase in transaction volume and improved liquidity, rather than the direct effects of Federal Reserve policy adjustments. While the central bank’s rate cuts have made shorter-term, floating-rate debt more attractive, Littell cautions that “small adjustments to interest rates don’t have a great immediate correlation to commercial real estate” compared to the tangible impact of rent growth. The influx of liquidity and buyer competition has “pinned cap rates to the wall,” preventing further expansion and, in isolated cases, resulting in modest compression for best-in-class properties. This theme of renewed activity is reinforced by recent deal volume statistics. Littell shares that across the five major property types, transaction volumes jumped 19 percent year-over-year in the second quarter, an outcome he calls “significant.” While multifamily’s year-over-year statistics for the same period were tempered by Blackstone’s $10 billion acquisition of 77 apartment communities from AIR Communities, which skewed 2024’s numbers, Littell is confident that subsequent quarters will illustrate the underlying momentum. He describes a healthy, seasonal rhythm to multifamily activity, with strength building into the second half of each year—a dynamic that has repeated across both 2024 and 2025. Looking ahead, Littell’s outlook remains positive. Multifamily, he contends, is typically “the first in and the first out of a market dislocation.” The prevalence of one-year lease terms means the sector is more responsive to economic signals than asset classes with longer rent rolls, such as office. As core fundamentals stabilize, the multifamily market serves as a bellwether for the broader commercial property landscape. If demand and pricing resilience persist in apartments, Littell says, investors can expect to see similar themes emerge in retail and industrial asset classes as 2026 approaches.