The multifamily apartment market is experiencing a notable paradox: weakening rental fundamentals are coinciding with a surge in investor demand. While rents are falling and vacancies are rising, investment firms and real estate investment trusts (REITs) are actively seeking to expand their portfolios, anticipating a stronger market in the coming years.
Key Takeaways
- National median rent fell 1.4% year-over-year in January.
- Vacancy rates reached a record high of 7.3% in January.
- Investor demand for multifamily properties is increasing, despite current market softness.
- The Sun Belt, Midwest, and Texas are top regions for future investment.
- Investors are looking past current challenges to long-term market recovery in 2027 and beyond.
Current Rental Market Weakness
The apartment rental market began 2026 on a soft note. Data from January showed the national median rent dropped by 1.4% compared to the previous year. This marks the largest annual decrease since September 2023 and represents the lowest January rent level since 2022.
Overall, rents are now more than 6% lower than their peak in 2022. This decline is largely due to increasing vacancies across the country.
Key Rental Statistics (January)
- National Median Rent: Down 1.4% year-over-year
- Vacancy Rate: 7.3% (record high on Apartment List index)
- Average Lease Time: 41 days (four days longer than January 2025)
Chris Salviati, chief economist at Apartment List, explained the trend. "We’re past the peak of a multifamily construction surge, but a healthy supply of new units are still hitting the market and colliding with sluggish demand, causing vacancies to continue trending up," Salviati stated.
In 2024, more than 600,000 new multifamily units entered the market. This was the highest number of new units in a single year since 1986. While this number decreased to 500,000 in 2025, and fewer are expected in 2026, the supply remains above average.
Rising Investor Confidence
Despite the current weak fundamentals, investor interest in the multifamily sector is growing. Both private capital and REITs are showing increased appetite for these properties. Moody's data indicates that multifamily properties led all real estate sectors in deal-making during 2025.
"We have a huge demand for it right now. Not two or three, but hundreds."
Ric Campo, CEO of Camden Property Trust, a major multifamily REIT, highlighted this demand. His company recently began marketing its entire California apartment portfolio, consisting of 11 properties valued at approximately $1.5 billion. Campo noted significant interest, receiving hundreds of inquiries.
Camden Property Trust plans to focus its operations entirely on the Sun Belt, where 90% of its properties are currently located. Campo believes that Sun Belt markets will offer better long-term growth dynamics and net operating income growth compared to California, especially after a recovery expected in 2026 or 2027.
Why Weakness Fuels Demand
Some investors see current market softness as an opportunity. No rent growth combined with wage growth has improved apartment affordability across America. Historically, apartment rents have not stayed flat for more than a year or two outside of major recessions, leading investors to anticipate a market turnaround.
The Disconnect and Future Outlook
The contrast between declining rents and rising investor interest creates a market disconnect. Mark Franceski, managing director of research and securities at Zelman & Associates, described it as a "defining conflict." Transaction volume has increased for 14 consecutive months on an annual basis, even with little change to capitalization rates.
Franceski emphasized, "We still believe in it as stable and steady, and the long-term outlook is good, but fundamentals and investors point to the same thing: weakness."
Investor Sentiment and Regional Focus
A 2026 Multifamily Investor Sentiment Survey by Berkadia, which surveyed 249 investors, revealed cautious optimism. 87% of investors plan to moderately or aggressively expand their multifamily portfolios in 2026. A majority, 59%, anticipate moderate rental growth this year.
The survey identified the Southeast, Midwest, and Texas as the top regions for multifamily investment. These areas are attractive due to ongoing migration trends, better affordability, and business-friendly policies.
Top Investment Regions for 2026
- Southeast
- Midwest
- Texas
Samuel Sahn, managing partner at Hazelview Investments, explained the investor perspective. "They’re looking through the softness today to what they see as a better environment tomorrow," Sahn said. Private entities with a five to ten-year investment horizon are optimistic about the market in 2027 and beyond.
Sahn predicts an upturn in household formation and a sharp slowdown in new multifamily construction starts. These factors are expected to give landlords more pricing power for both new leases and renewals in the future.
Location and Alternatives
Franceski stressed that location will be more critical than ever in the upcoming cycle. "I would treat [local] markets like stocks. It’s a market pickers’ market the same way the stock market is. People are hyperfocused on regions and markets," he noted.
State regulations also play a role in investment decisions. Alexander Goldfarb, managing director at Piper Sandler, pointed out the benefit of reducing exposure from heavily regulated states like California in favor of the Sun Belt's pro-business environment and qualified workforce.
Beyond traditional apartments, Franceski also highlighted alternative multifamily options such as senior living and student housing. These segments show strong future demographic trends, particularly senior living, driven by the aging population.
Ultimately, the focus for investors is on solid operations and stability. "Everybody’s got to live somewhere," Franceski concluded, underscoring the fundamental need for housing, regardless of market fluctuations.
