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A 2025–2026 Multifamily Real Estate Outlook

A Market Reset Maybe Creating Fresh Opportunity for 1031 Exchange Investors

Over the past two years, the multifamily sector has been navigating one of the most turbulent supply cycles in recent history. A wave of new development, combined with high interest rates and inflationary headwinds, led to declining rents in many markets and a general sense of caution among investors.

However, as we move through the back half of 2025, the data points to a potential inflection in market dynamics. For accredited investors evaluating replacement property options in a 1031 exchange, this shifting landscape could signal a timely window of opportunity.

A Rapid Reversal: From Oversupply to Opportunity

In 2023 and 2024, U.S. multifamily construction hit historic highs, peaking at nearly 600,000 new units entering the market. The result was predictable. Rent growth slowed or turned negative in many high-growth metros, and new lease-ups often came at a discount. But the conditions that produced this imbalance are already correcting. According to industry participants Newmark and Origin Investments, new multifamily starts are expected to fall by 15.2 percent in 2025 and a staggering 53.8 percent in 2026¹.

As new supply dries up, the pressure on rent growth and occupancy rates is beginning to ease. Markets that were recently oversaturated are now poised for tighter fundamentals heading into 2026. For sponsors, this environment favors stabilization and pricing power. For investors, it presents an opportunity to enter while valuations are still below prior peaks.

The Supply-Demand Rebalancing Is Already Underway

Despite widespread concerns in 2023 and early 2024, demand for multifamily housing never meaningfully declined. In fact, demand outpaced supply in 48 of the top 50 U.S. metros as recently as Q3 2024². This mismatch is now intensifying due to the slowdown in new construction.

Markets across the Sunbelt and Southeast are already showing signs of renewed strength. According to Origin’s Multilytics® forecast, nearly all major Sunbelt markets are expected to return to positive rent growth by January 2026³. In some cases, rents are projected to grow more than 5 percent year over year. The rebalancing is underway, and investors who understand the momentum shift have a chance to position ahead of what could be a broader market recovery.

Why Institutional Capital Is Returning to the Sector

After 18 months of repricing and caution, institutional capital is making its way back into multifamily. As reported by 37th Parallel, many large investors are adjusting their buy boxes and deploying capital into what they see as more rationally priced assets⁴. 

This is not a speculative land grab. Institutions are targeting stabilized assets and well-located properties where they believe future rent growth is more likely than not. This return of large-scale capital is a strong validation signal for individual investors. As cap rates begin to compress and cash flow improves, today’s discounted prices could become tomorrow’s premium entry points.

2026 Rent Growth Outlook: Markets Poised for Strong Gains

The momentum in rent growth is expected to accelerate throughout 2025 and into 2026, with a number of metro areas leading the charge. According to the Multilytics® forecast, top-performing markets include Orlando (5.64 percent), Jacksonville (5.57 percent), Las Vegas (4.64 percent), and Raleigh (4.38 percent)³.

Even markets that were hardest hit by oversupply, such as Austin and Denver, are expected to return to positive growth territory by early 2026. In fact, Multilytics projects that many markets will revert to historical rent growth averages of 4 to 5.7 percent compounded annually over the next five years³. These kinds of long-term fundamentals are attractive for 1031 investors looking to balance income, appreciation, and diversification.

Implications for 1031 Exchange Investors

With fundamentals stabilizing and rent forecasts turning positive, the outlook for DST portfolios is improving. Investors using 1031 exchanges have a chance to acquire multifamily interests in markets that are both discounted and poised for potential recovery.

Because new development is declining, stabilized assets could become more valuable. Lower basis levels, achieved during the recent downturn, could translate to stronger yields within DST structures. And as cap rates begin to compress, replacement property acquired today may benefit from future price appreciation.

For investors seeking the potential for income, tax deferral, and institutional-quality real estate exposure, the current moment may offer a more favorable risk-reward profile than we have seen in the past few years. If you are seeking a diversified, historically inflation-sensitive asset class that offers the potential for long-term income and capital preservation, multifamily may be well worth a closer look.

Contact us today to discuss by emailing info@firstguardiangroup.com or schedule a no-obligation consultation today!

Sources:
Origin Investments, Multilytics® Rent Forecast: January 2025–January 2026, p. 3
Newmark as cited in Origin Investments, Multilytics® Rent Forecast, p. 4
Origin Investments, Multilytics® Rent Forecast, pp. 6–9
37th Parallel Properties, Multifamily Supply-Demand Imbalance: The Investment Opportunity, 2025

Paul Getty

Paul Getty is a licensed real estate broker in the state of California and Texas and has been directly involved in commercial transactions totaling over $3 billion on assets throughout the United States. His experience spans all major asset classes including retail, office, multifamily, and student, and senior housing. Paul’s transaction experience includes buy and sell side representation, sourcing and structuring of debt and equity, workouts, and asset and property management. He has worked closely with nationally prominent real estate brokerage and investment organizations including Marcus Millichap, CB Richard Ellis, JP Morgan, and Morgan Stanley among others on the firm’s numerous transactions. Paul also maintains a broad network of active buyers and sellers of commercial real estate including lenders, institutions, family office managers, and high net worth individuals. Prior to founding First Guardian Group/FGG1031, Paul was a founder and CEO of Venture Navigation, a boutique investment banking firm specializing in structuring equity investments made by institutions and high net worth individuals. He possesses over 35 years of comprehensive worldwide business management experience in environments ranging from early phase start-ups to multi-billion-dollar corporations. His track record includes participation in IPOs and successful M&A activity that has resulted in investor returns of over $700M. Paul holds an MBA in Finance from the University of Michigan, graduating with honors, and a Bachelor’s Degree in Chemistry from Wayne State University. Paul Getty holds Series 22, 62, and 63 securities licenses and is a registered financial representative with LightPath Capital Inc, member FINRA /SIPC. Paul is a noted speaker, author, and actively lectures on investments, sales, and management related topics. He is author of The 12 Magic Slides, Regulation A+: How the JOBS Act Creates Opportunities for Entrepreneurs and Investors, and Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST), available on Amazon and other retail outlets.

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