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Real multifamily cap rates (the difference between a property’s cap rate minus the inflation rate) stopped yielding a 

return once inflation topped 5.0% back in September 2021. This trend continued until March 2023, when the inflation 

rate fell back below the 5.0% threshold. At the peak of inflation, which was at 8.5% in August 2022, real multifamily 

cap rates bottomed out at negative 3.8%, as seen in the chart below. Although real multifamily cap rates have 

remained positive since March 2023, thanks primarily to the drop in inflation, the spread between nominal and real 

cap rates is at 390 basis points, which is somewhat higher than the historical average since 2012 of 310 basis points. 

Multifamily Economic and Market Commentary

DECEMBER 2023

Multifamily Values Not Driven Solely by Rent Growth

Source: MSCI Real Assets, BLS

Nominal vs. Real Capitalization Rates (Seasonally Adjusted)

Inflationary pressures have declined significantly over the past year, and while the 10-Year Treasury rate is elevated 

compared to recent trends, it remains historically low, as seen in the chart below. Nevertheless, one of the reasons 

why multifamily property sales have been subdued this year is because of higher interest rates, yet multifamily 

capitalization rates (a measure of a property’s income relative to its value) have not changed significantly, increasing 

only 60 basis points to 5.3% as of third quarter 2023 from 4.7% as of third quarter 2022, according to data from MSCI 

Real Assets. 

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Treasury Constant Maturities Nominal - 10 year CPI, (%, SAAR)

10-Year Treasury vs. Inflation

Source: Federal Reserve, Moody’s Analytics

Multifamily Prices Remained Elevated After Adjusting for Inflation 

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Inflation Cap Rate Real Cap Rate
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Multifamily Economic and Market Commentary

Price Appreciation Outpaced Net Operating Income Growth...

Much of the growth in multifamily property values over the past two decades has stemmed from price appreciation of 

properties, rather than from the net operating income (the income a property produces, after expenses), and that has 

been consistently the case over the long term, as seen in the chart below. Positive demographic trends have been a big 

driver of multifamily valuations, as the 20-to -34-year-old cohort – those most likely to rent multifamily units –has 

continued to increase in size. Indeed, this cohort is expected to peak in 2024 at an estimated 69 million people, up from 

67 million in 2016, according to Census Bureau projections. 

... Even in Smaller Metros

Multifamily property prices have benefited from both positive net operating income and property value 

appreciation to differing degrees depending on the metro. In many higher-cost California metros, such as San 

Diego, Los Angeles, San Francisco, and Orange County, the increase in price appreciation has been higher than 

net operating income over the long term, as seen in the chart above. The same is true for other higher-cost 

metros, including Boston, Portland, Seattle, Miami, Chicago, and Honolulu. 

However, even in less expensive metros, such as Cleveland, Pittsburgh, St. Louis, and Kansas City, multifamily 

property price appreciation has been the primary driver in higher valuations, consistently outpacing net operating 

income. Interestingly, some metros have seen a much larger increase in price appreciation from valuations. 

Unsurprisingly, New York is one such metro, but so is Houston, Minneapolis, Memphis, and Raleigh, further 

demonstrating the belief many investors have in the power of demographics in terms of ongoing multifamily 

demand across the country. 

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Value NOI

1999 – 2022 Average: CBRE-EA Value and Net Operating Income Indices (Five-Year Average Annual CAGR)

Source: CBRE Econometric Advisors
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Multifamily Economic and Market Commentary

Property Price Appreciation is a Matter of Timing...

Multifamily property value growth has followed a similar trajectory for some of the nation’s largest metros, as seen in 

the chart below. Although there have been periods of significant increases in valuations, there have also been periods of 

negative growth, most notably between 2009 and 2010 during the Great Recession, as well as more recently beginning 

in 2022 as interest rates began to rise. 

When looking at valuation changes, timing can make a big impact. For example, Boston multifamily prices, measured 

over a five-year-rolling period, declined 8.4% from 2009 to 2012, but then rebounded by nearly 25% from 2013 to 2016. 

... But Patience is a Virtue

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Boston Chicago Dallas Houston Los Angeles

New York San Francisco Washington, DC Sum of Markets

CBRE-EA Value Indices (Five-Year-Rolling Average Annual CAGR)

Source: CBRE Econometric Advisors

Very few metros have seen periods of significant decline. In addition to Boston, other large multifamily metros such 

as San Francisco, New York, and Los Angeles, have seen a few periods of price declines. Overall, however, 

multifamily investment yields positive appreciation over time. 

Owning a multifamily property tends to favor a long-term hold strategy, which some investors have not heeded 

over the past few years, despite a slowly declining value index trend commencing in 2015. Indeed, multifamily 

property sales activity peaked in 2021 at nearly $358 billion, according to data from MSCI Real Assets, but have 

since then declined significantly, with multifamily sales totaling $305 billion in 2022 but just $91 billion as of third 

quarter 2023. 
Multifamily Economic and Market Commentary

A longer hold time is also more favorable for NOI, since it provides property owners time to recoup capital 

expenditures and improvement costs, while also providing tenants with more stable and less dramatic rental 

increases. 

We believe that multifamily property investment trends will see a longer hold period over the next few years, 

since property price appreciation trends have been moderating and are expected to continue to do so with 

interest rates staying higher for longer. Currently, we anticipate that the 10-year Treasury will remain well 

above 4.5% through 2025 and that inflation will stay above the Federal Reserve’s 2% target during that same 

timeframe. Therefore, we do not expect to see a flurry of property sales activity during the next 12 to 18 

months, keeping many multifamily property owners owning longer than perhaps originally anticipated, but 

also perhaps keeping both values and NOI stable for longer.

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Boston Chicago Dallas Houston Los Angeles

New York San Francisco Washington, DC National

CBRE-EA NOI Indices (Five-Year-Rolling Average Annual CAGR)

NOI is Less Volatile...

... But Also Favors A Longer Timeline

Source: CBRE Econometric Advisors

Net operating income (NOI), on the other hand, tends to be less volatile, as seen in the chart below. Although there are 

periods in which some metros will experience negative NOI growth, they tend to be short-lived, since many property 

owners can quickly pivot to cut costs to adjust to declining revenues. San Francisco is one example of extreme swings, 

with net operating income, measured over a five-year-rolling period, declining 14.7% between 2002 and 2005, but then 

rebounding by nearly 16% between 2006 and 2009. Some of this rebound occurred during the Great Recession, while 

other metros were experiencing a more stressful environment. 
Multifamily Economic and Market Commentary

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Kim Betancourt, CRE, Vice President

Tim Komosa, Senior Manager

Stephen Gardner, Lead Associate

Multifamily Economics and Strategic Research

December 2023

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