release edition [070]

read time [7 minutes]

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Today at a Glance:

• Supply: Slowing, But Slowly
• Rent Growth: The 16.2% Spread
• Capital: Debt vs Equity
• Weekly Listen: TreppWire 396

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Newmark dropped their 1Q26 U.S. Multifamily Capital Markets report this week, and I spent a few hours reviewing the sixty-plus slides in the report. One core theme emerged underneath all of the data. It's this: Today's Multifamily market isn't one market anymore. Rather, the top half is pulling away from the bottom half, and the gap is still widening.

Below are several charts and themes that stood out to me. I hope you find them useful and insightful.

Download the full report here.

Supply Is Slowly Slowing

The headline most people will take from this report is that supply is moderating. While true, the question is whether it's moderating fast enough to fix the structural challenges that persist across the broader Sunbelt region.

Good news: Quarterly deliveries hit 75,205 units in Q1, down 53.1% from the 3Q24 peak, and annual inventory growth slowed to 1.8%, the lowest reading in ten quarters.

The less good news is that supply still outpaced demand by over 63,000 units on a trailing basis (chart below).

Annual supply has now exceeded annual demand for two consecutive quarters. The market absorbed 93,277 units in Q1, which is seasonally strong, and the trailing 12-month figure of 303,377 is still 40% above the long-term average.

But, the excess supply from 2024-2025 is still working its way through the sector.

Many Multifamily owners and investors in these elevated supply markets won't see meaningful renewal increases until hopefully late 2026 and into 2027.

Starts are at 276,238 (down 11% from two years ago, down 52.8% from the 2022 peak).

Units under construction sit at 552,135, or half of the 1Q23 peak.

This is the deliverable that matters for underwriting deals with 2027-2028 exits.

Modeling an acquisition in 2026 that has the possibility to successfully exit early in 2029-2030 is a great setup if the market fundamentals are firm enough to support it.

Summary: Supply is bending in the right direction with deliveries down 53% from the 2024 peak, starts at half of 2022, and a shrinking construction pipeline.

But trailing supply still outpaced demand, so strengthening of the underlying fundamentals will be a 2027 story, not a 2026 one.

The setup is good, but the timing matters.

Actionable Takeaway: If you're underwriting potential acquisitions, it's most defensible to model flat or even negative year-1 rent growth through 2026 in supply-heavy markets (i.e. >4% of stock under construction), with an expected recovery starting in late 2026 or early 2027, and accelerating into 2028.

The deals that pencil today on a slow-recovery base case are the ones worth chasing. If you're an existing operator, the renewal letters you're sending this summer are still going out into a soft market, so be thoughtful about retention vs creating negative lease trade outs, especially with limited pricing power and potentially softer demand than desired.

Rent Growth Is Diverging

I've been writing about the Blue vs. Red market thesis since TMD 016, and this Q1 data is the cleanest validation I've seen yet.

San Francisco posted the strongest rent growth among the top 50 markets in Q1 while Austin posted the weakest.

The spread between them is 16.2%, and it has been widening steadily since early 2024.

I'm surprised to see this divergence continue, as one of my 10 Multifamily predictions for 2026 was that this breadth would narrow, not widen.

The year isn't over yet, but this divergence continues to widen, likely exacerbated by the AI and CapEx boom in the Bay Area, and conversely, the immigration vacuum that's dragging on demand in Austin and the Sunbelt.

Look below at where the green concentration sits. New York has outperformed the U.S. average for 18 consecutive quarters. Newark, 15. Cincinnati, 15. Pittsburgh, 13. Cleveland and Kansas City, 14.

The Midwest and the Northeast, both supply-constrained regions, have confirmed that they are the new home of rent growth, and they have been for years.

Seven markets are now outperforming their 2015-2019 average: SF, San Jose, Virginia Beach, New York, Chicago, St. Louis, and Pittsburgh.

Conversely, most of the Sunbelt is below their 2015-2019 average rent growth figures.

Pricing power for Multifamily owners has rotated to lower-supply coastal and Midwest metros (see chart below).

Finally, a staggering 43.2% of Class C in the Sunbelt is offering some type of concession.

No, that's not a typo.

The lower end of the quality spectrum in supply-heavy regions is where there's real pain (see above: immigration vacuum).

Owning and successfully operating older vintage value-add product in Phoenix, Austin, or Nashville is a tall order right about now.

Summary: The 16.2% spread between San Francisco and Austin represents a sector that has bifurcated by supply exposure. The Northeast and Midwest have quietly become the rent-growth leaders.

There are seven markets beating their pre-pandemic averages, and almost none of them are in the Sunbelt. Class C concessions in supply-heavy regions are at 43.2%, which tells us exactly where the operational stress is concentrated.

Actionable Takeaway: Reassess market exposure with a 5-dimension screen (supply, demand, jobs, wages, and legislation) before any upcoming acquisitions.

For LPs, ask your sponsors a direct question: What is the supply pipeline in their target markets over the next 24 months, and how does that compare to the historical absorption rate?

Capital Markets Two Different Conversations

This section is particularly interesting, because the debt market is acting like Multifamily fundamentals are fine. However, the Equity market is acting like they're not.

Originations were up 46% year-over-year in Q1 (shown below).

Lenders are back with narrow spreads, more confidence in fundamentals as construction slows, and momentum that has carried through since the back half of 2024.

Bank originations have ticked up and debt funds are taking market share. Debt capital is readily available.

The Sales volume figures paint a very different picture, however.

There was only a slight 0.5% YoY uptick, with $32.0 billion trading in Q1, and $170.4B (+5.7% YoY) on a trailing 12-month basis.

The increase is real but modest, and most of it is concentrated in smaller deals.

Transactions under $25M are up 22.7% year-over-year and now make up 25.4% of all sales, while the $25-49.9M and $50-74.9M segments are up 10.5% and 7.4% respectively.

Big check writers are still mostly sitting on the sidelines.

The graph below is the punchline of the whole report for me.

The RCA private market index is flat year-over-year. Green Street is down 0.2%. FTSE NAREIT public apartment REITs are down 18.8%.

That gap is enormous. Either the public markets are wrong, or the private market is about to be wrong.

Historically, public markets price the future faster, but private markets are stickier and less liquid.

I'm not predicting which one is right or wrong, but just observing that this gap is too wide to ignore.

Cap rates have barely moved, up 13 bps YoY to 5.8%. NCREIF cap rates are up 13 bps to 5.2%, and nominal cap rates moved up 3 bps to 5.3%. The blended average as of Q1 2026 is 5.4% versus 5.3% a year ago.

In a market where the 10-year is now above 4.5%, it's highly likely that the market is back in negative leverage territory for widely marketed deals.

Without fundamentals to support future NOI growth expectations, I expect transaction volume to slow meaningfully in Q2 and Q3, or until the 10-year settles back in the 4% range.

Summary: Debt is back, but equity is not. Originations jumped 46% year-over-year, agency and bank lenders are competitive, and spreads have narrowed. But investment sales volume is up only 0.5% YoY, cap rates have barely moved, and the public REIT index is down 18.8% while private market indexes sit flat.

The spread between what lenders believe, what private sellers believe, and what public markets believe is the widest it has been in years. Something has to give, doesn't it?

Actionable Takeaway: If you have a maturing loan, executing a refinance now may be worthy of consideration versus waiting for rates to come down. The window is open, spreads are tight, and debt capital is plentiful.

If you're a buyer, the price discovery problem hasn't been solved yet, but smaller deals (under $25M, up 22.7% YoY) are where transactions are getting done.

2026 Outlook

A few things I'm taking from this report:

1. The slowing supply story is real, but slow. NOI growth is going to be challenging in 2026 for most Multifamily owners, especially in elevated supply markets.
2. Market selection matters more than vintage or basis right now. An older vintage asset in Pittsburgh is probably outperforming a 2022-vintage asset in Austin on a trade-out basis today.
3. The public-private valuation gap is the most interesting chart in the report. Do the public markets know something that the private market is failing to admit or disclose or realize?
4. Healthy debt markets are the glimmer of hope. The ability to refinance or acquire marginal deals because debt capital is readily available and spreads are narrow could be the saving grace for Multifamily transaction volume in 2026.

Location selection, minimizing the total cost basis, and business plan execution are critically important in this beginning stage of this next cycle.

The ability to wait patiently can be incredibly valuable.

Weekly Listen

This week's listen is the TreppWire Podcast Episode 396 hosted by Lonnie Hendry, Stephen Buschbom, and Hayley Keen.

In it, they thread the same needle that the Newmark report does. The Trepp team breaks down selective stabilization across CRE, why the top 25 multifamily developers are now commanding a record share of starts, and early signs of credit expansion at banks.

You can listen to the full episode here.

Wrap Up

That's it for today. I hope you found this edition of The Multifamily Download insightful.

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Thanks for reading. See you next week!

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