Quick Take: AI uncertainty dominates headlines, but the real story for multifamily investors is unfolding quietly in operating data: leasing is improving, concessions are burning off, and effective rents are moving higher. What began as a forecast six months ago is now showing up as evidence. The question is no longer whether fundamentals will improve, but whether this marks the beginning of a multi-year recovery cycle — and we believe it does.
For the last several years, as we have experienced the market we forecasted six months earlier, it has been helpful to provide additional insights into how multifamily real estate is performing. This isn’t an exercise in grading or changing our predictions — to praise what we got right or take a mulligan on what we may not have foreseen.
Instead, it is part of our culture to be transparent and informative, to digest and analyze the myriad conditions impacting our investments, and to share our understanding of what it means for the next six months and beyond.
In December 2025, the introduction to our 2026 predictions piece focused heavily on Artificial Intelligence (AI) and the wide-ranging impact it could have on the overall economy, employment trends, and ultimately the demand for residential real estate. AI remains an important topic in the near and long term. However, as we arrive at mid-year, there are other important topics to consider, including evidence, not simply conjecture, that multifamily real estate markets are recovering.
Here’s our assessment of the themes we believe will define the next six months:
AI’s Uncertainty Is a Wildcard That Overshadows Almost All Else
Universally, AI may be the defining conversation piece throughout all industries and across the globe.
Global tech firms, like Gartner, project that 2026 will be an inflection point for AI, when spending on enterprise systems accelerates materially, from $1.76 trillion in 2025 to $2.6 trillion in 2026 to $3.49 trillion in 2027 (AI Spending Trends USA).
The greatest uncertainty over the next several years isn’t necessarily inflation or interest rates. Understanding how artificial intelligence will impact employment trends and household formation is more significant.
Historically, innovation creates opportunity and, over time, jobs. Yet there are periods where disruption moves faster than opportunity or job creation.
For multifamily investors, the question isn’t simply whether AI changes productivity. Generally, that’s a given. Instead, it’s whether labor disruption arrives before new economic opportunities emerge. Traditionally, when younger workers face difficult employment environments, household formation slows. That’s important because household formation is one of the key drivers of apartment demand.
Burying the Headline: Recovery Is Moving from Forecast to Evidence
During typical business and economic cycles, true evidence of a recovery would be the lead story all day long. But with the frenzy being generated by AI, that isn’t the case.
At the beginning of the year, we believed the market was approaching an inflection point, and we said so. What’s notable now is that we’re no longer talking about projections alone. We’re beginning to see the recovery show up in actual operating performance. Leasing activity is improving, concessions are becoming less aggressive, and effective rents are beginning to move higher.
That’s an important shift because real operating data carries more weight than forecasts.
Investor questions now shouldn’t be whether fundamentals will improve, but whether the current improvement marks the beginning of a multi-year cycle. We believe it does.
The Fundamentals Are Strengthening
When you combine stronger leasing trends with moderating expenses, you begin creating a much better operating environment. Insurance costs have stabilized, payroll pressures are more manageable, and concessions are starting to burn off. Those trends matter because they directly affect net operating income, which ultimately drives long-term value creation.
Supply is becoming a powerful tailwind. One of the advantages in multifamily today is that much of the supply outlook is already known. Projects delivering in 2027, 2028, and beyond would have largely started years ago, and many simply didn’t. We already know new development activity has fallen dramatically, which means future supply is likely to remain constrained. That creates a favorable setup for long-term fundamentals. According to Newmark’s 1Q2026 report, quarterly deliveries are down more than 53% from a 3Q2024 peak. Annual inventory additions sank to 1.8%, the lowest level in 10 quarters.
Demand does not need to surge. Our near-term outlook for multifamily investments doesn’t depend on demand becoming dramatically stronger. That’s an important distinction. Demand simply needs to remain at current levels. If that happens, given what we already know about future supply constraints, the prognosis for multifamily over the next one, three, and five years becomes increasingly attractive. On a trailing 12-month basis, absorption of more than 303,000 units is higher than the long-term average by 40.2%, and normalizing.
Follow the bounce off the bottom. The strengthening fundamentals add to the feeling that we are past the bottom of the market, have bounced, and are beginning to see the early stages of what could become a multi-year move higher. We don’t need perfect conditions; we simply need demand to remain healthy.
Construction and Development: The Intersection of Cost and Opportunity
Adding to the uniqueness and somewhat contrarian aspects of the development and construction of new communities is that construction costs aren’t behaving the way many people expected.
Material inputs — for concrete, steel, and lumber, among others — may be increasing, though not at exorbitant levels. However, given the tremendous slowdown in development activity, actual project bids are still lower than one might expect. Contractors are aggressively competing for a smaller pool of projects. That dynamic helps keep overall costs in check. In fact, it may be creating an attractive development window for disciplined builders.
Interest Rates: It’s About Geopolitics, Not the Fed
The 2026 interest rate environment shifted dramatically at the end of February with the Trump administration’s launch of military operations against Iran. The subsequent closing of the Strait of Hormuz, the disruption to the global oil supply, and ongoing geopolitical uncertainty have had a ripple effect through the economy, at home and abroad.
At the end of 2025, no experts could have predicted the scenario that currently exists. As a result, instead of anticipating rates that likely would fall in the 3.6–4.6% range, expectations have shifted higher to a range of roughly 4–5%.
The expectations for higher rates are not currently being driven by a structurally overheating economy, but by external shocks that should eventually normalize, when a peace agreement is reached between the U.S. and Iran.
The Structural Advantage of Renting Is Widening
Various financial barometers reinforce the structural trends that increasingly favor rental housing. Renting remains roughly 50–65% cheaper than ownership, and mortgage rates nearing 7% remain restrictive for generations of would-be buyers. Additionally, according to a report by Redfin, at the end of February 2026, there were 46% more home sellers than there were likely buyers. In many parts of the country, it’s a buyer’s market but they aren’t buying.
In reality, this is bigger than cyclical economics and more than high mortgage rates. It is about demographic and behavioral changes that create durable rental demand. In today’s world, there are fewer new marriages, and those who do marry are doing so later in life. And collectively, married or not, renters prefer the flexibility that comes with renting.
Conclusion
Recovery trajectories in real estate are rarely linear, and the conditions supporting today’s improving fundamentals are not guaranteed to persist. Geopolitical developments, a prolonged higher-rate environment, a slowdown in household formation driven by AI-related labor disruption, or an unexpected resurgence in new supply could delay, moderate, or reverse current trends. Nothing in this commentary should be construed as a guarantee of future performance or as an assurance that the multifamily market will continue to improve at its current pace.
Notwithstanding the future, the environment we are living in—politically, geopolitically, and economically—is unprecedented, not just today but since before COVID. As an investor and a business owner, I’ve learned that over many cycles, long-term assets are going to experience both headwinds and tailwinds. You can’t control geopolitical events or macro shocks. Instead, you focus on operational execution and fundamentals. For us, that means maximizing property performance and maintaining discipline regardless of the environment.
