Multifamily: A rental health check-in

We examine the crosscurrents impacting a significant sector of the U.S. CRE market: Multifamily.

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August 14, 2023 | 5 minute read

The U.S. commercial real estate (CRE) market has come under pressure from rising interest rates and an uncertain economic outlook. The multifamily sector has experienced what feels like a full market cycle in the span of just three years. With uncertainty swirling around the CRE space, we take a deep dive into the outlook for the rental market.

Key takeaways

  • The multifamily market and U.S. commercial real estate overall are being challenged by the sharp rise in interest rates.
  • Apartment rent growth has softened recently following the surge in 2021 and 2022.
  • New construction activity has climbed rapidly in certain markets—mostly in the Sun Belt—leading to fears of a supply glut.
  • The primary demand supports for multifamily remain in place—a strong labor market, a secular housing shortage and demographic tailwinds.
  • We believe the risk-return backdrop favors lenders over borrowers for investors seeking income and the ability to take a more defensive posture.

Read the complete research note to learn more.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

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Andrew Korz, CFA

Executive Director, Investment Research

Robert Hoffman, CFA

Managing Director, Credit Wealth Solutions

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