2026 Predictions: A Return to Normal

It’s that time of year when everyone rolls out their predictions for the year ahead. In thinking about it, I’m not sure I’ve ever seen a truly pessimistic outlook from a real estate company or someone invested in the industry. There are plenty of single-family housing doomers predicting massive price declines, but they’re mostly doing that for the clicks.

I’ll try to strike a balance between talking my own book and being objective. With that, here are my predictions for the multifamily industry in 2026.

Values Remain Flat (Nationally)

I don’t believe values will meaningfully improve until one of two things happens.

First, real rent growth is needed to drive values. As we’ve seen in San Francisco, 5%+ rent growth attracts more buyers. Those buyers are also more comfortable underwriting 5-6% rent growth for more than a single year. That allows them to pay a lower going-in cap rate because NOI growth makes up the difference.

Second, increased capital flows push values higher. As more groups chase the same assets, someone inevitably stretches by assuming higher rent growth, thinner expenses, or a lower exit cap rate. This is happening in San Francisco, but not so much everywhere else.

On a national basis, rents should increase in 2026, but not at the breakneck pace we’re seeing in San Francisco. Modest rent growth and stable operations should allow for price discovery. This, in turn, will create a growing sense that the bottom is in. But until capital flows back into places like the Sunbelt, values won’t meaningfully improve.

Operations Stabilize

A big piece of the value puzzle is operational stability. Owners have been hit with a surge of new supply, creating occupancy challenges. Expiring loans have forced refinancings at higher interest rates, compressing cash flow. Insurance, payroll, and maintenance costs have all risen sharply, reshaping NOI profiles—and values—across many assets.

I think these pressures begin to stabilize in 2026.

As the supply wave wanes, occupancy should improve. With a more stable tenant base, owners can refocus on controlling operating expenses. Anecdotally, I’m hearing more stories of insurance premiums coming down, or at least slowing materially. Property taxes remain a wildcard in many markets, but for assets already marked-to-market, there’s little justification for meaningful assessed value increases.

Transaction Volume Improves

I expect 2026 to bring higher transaction volume, signaling that the pricing trough is behind us. It will also show that demand isn’t limited to newer properties; older vintages should see renewed interest as well.

Transaction volume tends to mirror property values. Since I don’t expect values to move much, I think deal activity will improve, but not to the point where it materially pushes pricing higher.

Apartments Become Boring Again

The biggest shift in 2026 will be apartments reclaiming their status as a boring investment.

Apartments were never meant to generate 20% IRRs through modest value-add work. Even historically, new development was hard to pencil to a 20% IRR. Today’s investor expectations—15% net IRRs and 18-20% gross IRRs—will begin to reset toward historical norms.

Markets with meaningful rent growth (think San Francisco and the broader Bay Area) will see cap rates compress alongside rising rents, returning to appreciation-driven sales markets. Markets with steadier rent growth will be priced more on cash flow, and therefore trade at higher cap rates.

The Sunbelt’s positive demographics remain intact, keeping those markets among the most desirable. Cap rates there will be lower there than in the Midwest, driven largely by perceived growth prospects.

In short, I don’t expect 2026 to be a breakout year nationally. But I do think it will be a healthy one. Drilling down into specific submarkets will unlock pockets of outsized performance, where AI-driven growth, return-to-office trends, and persistent supply constraints have an amplified impact on rent growth and values.

This is also my last post for 2025. See you in 2026!