After two years of volatility, the commercial real estate market is beginning to show signs of stabilization. According to CBRE’s H2 2024 Cap Rate Survey, transaction volume has started to recover, and while certain sectors remain under pressure, multifamily and industrial real estate are demonstrating strong resilience.
This shift follows a challenging 2023, when rising interest rates and capital markets uncertainty led to a 51% decline in transaction volume. Encouragingly, activity has increased by 9% in 2024, suggesting that buyers and sellers are adjusting to evolving market conditions. For multifamily investors, the latest data reinforces an improving pricing landscape and a potential plateau in cap rates.
Cap Rates Holding Steady—A Turning Point for Multifamily?
CBRE’s survey, conducted between November and December 2024, aggregates 3,600 cap rate estimates across various asset classes and markets. Despite ongoing volatility in Treasury yields, cap rates across most property types remained stable in the second half of the year. Multifamily, in particular, is showing signs of stabilization—and even modest cap rate compression—driven by renewed confidence in net operating income (NOI) growth.
This marks a significant contrast to the rapid repricing experienced in 2022 and early 2023. With fewer distressed sellers, more patient capital, and debt markets adapting, multifamily remains one of the most durable asset classes. While borrowing costs remain elevated, the narrowing spread between cap rates and financing rates suggests that transaction volume may continue to improve heading into 2025.
Investors Adjusting Expectations: The Worst May Be Over
A key takeaway from CBRE’s latest findings is the shift in investor sentiment. Unlike past surveys, where the majority expected cap rates to continue rising, the most common response this time was No Change.
This suggests that investors increasingly believe the cap rate expansion cycle has concluded. While a significant compression in cap rates is unlikely in the near term, the survey indicates that the market is entering a more stable phase, allowing transactions to proceed with greater confidence.
The Office Sector’s Struggles and Its Ripple Effects
While multifamily is stabilizing, the office sector continues to face significant challenges. Financial distress is placing upward pressure on office cap rates, and investor confidence remains subdued. Although Class A properties in major gateway markets are showing early signs of recovery, older Class B and C buildings continue to struggle.
CBRE’s data highlights a pronounced bifurcation within the office sector. Prime office properties are seeing cap rates near 8%, while distressed Class C spaces have cap rate estimates in the low teens. This significant spread underscores the uncertainty surrounding office valuations, an issue that is likely to persist.
For multifamily investors, distress in the office sector could present opportunities. The growing trend of office-to-residential conversions is gaining traction in urban centers where housing demand remains strong. While these projects come with complexities, they could offer compelling investment opportunities for those looking to reposition underutilized office assets.
What This Means for Multifamily Investors
For those investing in multifamily, the CBRE survey provides confirmation of several key trends:
Final Thoughts
Although commercial real estate is still navigating pockets of uncertainty, multifamily continues to demonstrate resilience. The latest CBRE data suggests that the market correction phase is largely behind us, setting the stage for a more stable transaction environment moving forward.
For investors, the key will be identifying opportunities where pricing has adjusted appropriately while maintaining strong NOI growth potential. With cap rates stabilizing and investor sentiment improving, 2025 could present some of the most attractive acquisition opportunities in recent years. We will continue to monitor market developments and share insights on where we see the best investment potential in the months ahead.
