Seeing clearly: how to find value in today’s US apartment market

The US multifamily sector has spent the past two years navigating significant supply headwinds.

Developers, encouraged by rising rents and favourable financing conditions during the pandemic era, unleashed a wave of new construction. The result has been predictable: elevated vacancy rates and compressed rent growth across many markets.

But construction starts have declined sharply as higher interest rates and construction costs made new projects uneconomical. Deliveries are peaking and will then decline meaningfully.

Just as supply headwinds fade, however, attention is shifting to demand. While the sector is supported by the relatively high cost of homeownership, household formation rates have softened amid elevated economic uncertainty. Near-term job growth is expected to be modest, and wage growth is likely to be constrained.

These cyclical demand difficulties are emerging just as structural demographic challenges emerge. Over the next five years, the 25-34 year-old cohort is expected to grow at half the pace of the past 10 years.

So, 2026 is unlikely to be a year of strong operational performance for most multifamily assets. Nevertheless, it could be a good year to make a long-term strategic commitment to the sector.

Green Street’s Commercial Property Price Index suggests that apartment values are down around 20% from the market peak. Transaction activity in 2024-2025 confirms that discounts to replacement cost are both deep and widespread.

Current property values simply don’t justify new construction, which creates a natural floor for valuations and sets the stage for future appreciation once supply constraints bind again.

It may take time to achieve growth, but with values inching upwards and financing conditions improving markedly, the window of opportunity may be limited.

Furthermore, given the heightened risk of long-term inflation, the short lease durations and frequent rent adjustments of multifamily assets make them a key component of resilient portfolios.

The real question for investors isn’t about sector recovery; it’s about identifying where the best opportunities lie. Superior returns come from seeing what others miss. Here are three ways to sharpen your perspective.

1. Look beyond headline demographics

Investors flock to markets showing strong population growth and positive migration flows. But what matters isn’t total population growth. It’s what’s happening to the demographic cohorts most likely to rent apartments.

While the apartment sector serves diverse household types, renters in their twenties and thirties form the core of apartment demand. Growth in these segments matters far more than overall population trends.

Understanding which cohorts are growing, where they’re moving, and their housing preferences reveals underappreciated opportunities. Investors should explore markets where the rental-age population is expanding faster than headline figures suggest.

Moreover, understanding migration dynamics requires distinguishing between domestic and international flows. With immigration policy tightening substantially and likely to remain restrictive for years, investors must reassess which markets truly have sustainable demographic tailwinds.

Gateway cities like New York, Los Angeles, and Miami have long relied on international immigration to offset domestic outmigration, but their vulnerability is well understood. Less recognised is the exposure of Sunbelt markets, where the recent significance of international migration is underappreciated.

2. Focus on the supply-demand balance

Capital tends to chase growth and momentum stories, rather than fundamental mismatches in supply and demand.

Markets where supply can easily respond to demand improvements get overvalued based on optimistic growth projections. Markets where supply constraints limit competition get undervalued because demand growth looks modest.

The best value often lies in slower-growing markets with favourable supply-demand imbalances. Scarce entitled land, restrictive zoning, community opposition, and high impact fees create supply constraints that provide durable competitive advantages.

Such considerations are likely to nudge investors to overweight urban infill over suburban locations and coastal cities over sunbelt markets. While these markets often trade at premiums to suburban and Sunbelt alternatives, that premium may understate the value of supply protection.

3. Evaluate capital requirements realistically

Capital expenditure matters greatly to investment outcomes, yet investors seem to perpetually underestimate requirements. Unrealistically low capex reserves boost projected NOIs, leading to overvaluations.

Good management and a healthy level of operating expenditure do not mitigate capex requirements. Properties age, and their capital needs accelerate over time. Mechanical systems have finite lives. Roofs need replacement. Unit interiors that looked fresh ten years ago now appear dated. Common areas that once impressed now look tired compared to competing new developments. Skimping on capex is not an option. Doing the bare minimum will result in a decline in asset quality over time, and that will be reflected in achievable rents.

Beyond accurate underwriting, investors can reduce capital expenditure risk by strategically positioning themselves to focus on higher-quality assets in strong locations. Three factors support this approach:

• Capital expenditure requirements are more predictable for newer, higher-quality properties.

• In low-rent markets, unexpected capital expenditures account for a larger share of annual NOI, making it harder to absorb without materially affecting returns.

• In markets with high land values, the building represents a smaller share of total asset value, so even major capital expenditures remain manageable relative to the property’s worth.

While some tout higher liquidity and greater potential rental growth as reasons to prefer higher-quality assets in good locations, a more compelling reason may be the greater protection from higher-than-anticipated capital expenditures.

Pricing below replacement cost, improving capital availability, and attractive inflation protection make this an opportune time for long-term strategic commitments to the apartment sector. But not all investments will perform equally. Those who look beyond headline demographics, focus on supply-demand balance rather than growth alone, and evaluate capital requirements realistically will generate superior risk-adjusted returns.

A version of this article originally appeared in The Property Chronicle. To read other articles I have written for The Property Chronicle, please click here.