Key takeaways

  • Strong performance and proven resiliency across multifamily properties has attracted huge amounts of capital and justified high valuations in markets large and small
  • Under the pristine surface, some cracks are beginning to appear which call to question the future trajectory of the multifamily property type


The last two decades were a boon for multifamily properties. Rising rental revenues, falling vacancy, and abundant cheap financing have attracted investors to the property type. The strong performance metrics have helped to fuel investor appetite and market activity.

Reonomy data shows that between the start of 2000 and year end 2019, the count of multifamily transactions increased by 103% (21.3 thousand in 2000 to 43.2 thousand in 2019), dollar volume increased by 125% ($56.9 billion in 2000 to $128.3 billion in 2019), and price increased by 116% ($75.27/sf in 2000 to $162.53/sf in 2019).

Given the essential need for housing and sustained increased consumer demand for renting rather than buying, the property type has earned a reputation that is both defensive in nature with upside earning potential. Additionally, the continued financial support for housing provided by the government-sponsored enterprises helps to ensure greater access to credit and supports a more liquid market. All of these factors together have contributed to the strong track record for the property type, and has helped to drive investment activity in markets large and small. While the value proposition for multifamily remains stronger than other property types, there are vulnerabilities that appear to be emerging – on both the supply-side and the demand-side.

In this report, we look at the trends that have helped to fuel multifamily investment activity across the US. Using Reonomy data, which consists of over 764,000 multifamily property transactions across 373 metropolitan statistical areas (MSA) between 2000-2019, we look to see how the investment activity is evolving differently in large and small MSAs. Finally, we discuss some potential future implications of supply-side and demand-side shifts on the property type.


Data overview

In this report we leverage over 764,000 multifamily transactions across 373 MSAs. Each transaction occurred between 2000-2019 and was greater than $250,000. To observe differences in different MSAs, we grouped the MSAs by population size based on 2019 estimates from Census. The categories of MSAs by size include:

  • Largest MSAs (1-15): These are the 15 largest MSAs by population.
  • Large MSAs (16-50): These are 35 large MSAs, ranked 16-50 out of 373.
  • Medium MSAs (51-100): These are 50 medium MSAs, ranked 51-100 out of 373.
  • Small MSAs (101-200): These are 100 small MSAs, ranked 101-200 out of 373.
  • Smallest MSAs (201-373): These are 172 small MSAs, ranked 201-373 out of 373.

The data used in this report focused on multifamily (general) properties and excludes niche property types such as: mobile home parks, student housing (dormitories/group quarters, frat/sorority houses), senior living (nursing homes), cooperatives, and properties with fewer than 5 units (duplex, triplex, quadplex). 

Past performance

The climate for multifamily properties over the past 20 years has been favorable. After hitting all-time lows in 2004, the percentage of Americans renting climbed back up to approximately 35% and is right in line with the historical average. And while the percentage is in line with the long-term historical average, the overall population has increased – which means that on an absolute basis, there has been an increase in the number of renters. Much of the increase in demand for renting was driven by a change in consumer preferences – an increased preference for renting – as well as decreased ability to purchase homes by certain demographic cohorts. Unlike single-family, multifamily did not experience the same supply glut in the mid-2000’s. With the increased demand and stable supply, national rental vacancy rates have fallen to 20 year lows (6.4%) by the end of 2019. Strong demand and low vacancy supported nearly two decades of rent increases. Monthly rent for primary residences across all US cities increased at an average annual rate of 7.4% from 2000 through 2019.

Strong operating performance across multifamily properties and sufficient access to cheap financing, supported valuations as evidenced by public market REITs. Out of nine major categories of REITs (office, industrial, retail, multifamily, diversified, health care, lodging/resorts, self storage, mortgage), the multifamily REITs were in the top three performers 11 (42%) of the past 20 years, in terms of price appreciation. Self storage and industrial REITs were the next closest top performers with 10 (38%) and 9 (35%) top three positions, respectively.

Market differences

With these strong tailwinds, investment activity in multifamily boomed. Capital flowed into the property type in large and small markets. The largest MSAs have accounted for the lion’s share of the market activity, however have been giving ground to medium and smaller MSAs – and at an increasing pace.


In 2019, there were 23.9 thousand multifamily transactions in the Largest MSAs (1-15), accounting for 55% of the total annual multifamily transactions. While this is still an outsized portion of the transactions, it is significantly below the 67% of multifamily transactions that these MSAs accounted for 20 years earlier. The Large MSAs (16-50) accounted for 23% of transactions in 2019, not far from their historical 19% average. While all other, smaller MSAs increased their portion of total transactions from 13% in 2000 to 22% in 2019. 

Total square feet transacted has been on a decline since 2015 and remains well below the 2005 peak. In 2019, 698.2 million square feet of multifamily space was transacted across all markets. This is up 59% from 2000, when 440.3 million square feet traded, however 2019’s level was still 15% below the 2015 local peak and 39% below the 2005 peak.

Looking at the amount of square feet transacted across different sized markets, we can see that all market sizes have seen a recent decline in the average size of properties transacting. However, it is interesting to note that the average size of properties transacted in the largest and smallest MSAs are more similar than those in the middle.  

In 2019, $128.3 billion in multifamily property transacted across all the MSAs, this is 125% above the 2000 level ($56.9 billion), but below the 2018 peak of $134.4 billion. Again, the Largest MSAs (1-15) continue to account for the majority of the total dollar volume transacted – 56% in 2019 – however, the smaller markets are gaining in popularity and attracting more of the total dollar volume transacted. 

Overall multifamily pricing ($/sf) has increased at a compound annual growth rate (CAGR) of 4%, and ended 2019 at median price level of $162/sf, or 116% above the 2000 level. While this CAGR is impressive – it has declined in the more recent past. The 20-year price CAGR is 4%, but the 5- and 3-year CAGRs are 3% and 2%, respectively. At the MSA level, the Largest MSAs (1-15) have seen a similar slowdown in price growth, as median prices have effectively flattened out over the prior 3-year historical period. However, the smaller MSAs have kicked this trend and show continued strong positive increases, maintaining the 4% or greater. 

Properties in smaller MSAs trade at a discount to the Largest MSAs (1-15), however this discount is not constant. For example, historically, multifamily properties in Large MSAs (16-50) have transacted at prices approximately 30% below the Largest MSAs (1-15), while the Smallest MSAs (201-373) have traded at prices approximately 70% below the prices of the Largest MSAs (1-15). Despite the discount estimates being imperfect and a bit noisy, they do show how these discounts have collectively been decreasing over the last decade – seen as an upward sloping or positive trajectory in the graphic. As market size discounts decrease, this is a signal that investors are not only paying more for multifamily properties in smaller markets in absolute terms (i.e., dollars), but also in relative terms (i.e., relative to larger markets).

Challenges ahead

Despite two decades of strong performance, which has justified higher valuations, and attracted more capital – multifamily properties are not indestructible. It is important to note that the trends that have served as tailwinds for multifamily properties over the last decade are likely not constant.

On the demand side of the equation, consumer behavior and preferences for living conditions may change and begin to prefer homeownership over renting. While this is not something that will happen quickly, even a gradual change can greatly impact growth projections used for valuation. Currently, this is unlikely, given that many of the would-be home buyers are millennials who may find it more difficult to access affordable financing to purchase homes which are still at all time highs.

Exogenously, the current pandemic and the related economic fallout have raised new questions and concerns for nearly all investors – and multifamily investors and owners are no exception. Higher levels of unemployment and underemployment are immediate headwinds to effective rent growth now and potentially in the years to come. Prevalence of remote work may also decrease the desire of some employees to be located as close to their employment place as pre-COVID, allowing them greater flexibility to look for housing options within a much wider radius than before. This may translate to being a benefit for smaller and lower cost of living MSAs at the cost of the larger MSAs.

On the supply side, declines in both rental vacancy and homeowner vacancy, suggest that more housing stock is necessary (or will be needed in the coming years). And given that nearly half of the renter population is cost-burdened (pay more than 30% of income for housing) and a quarter is severely cost-burdened (pay more than 50%of income for housing), the supply that would likely be needed the most would not be market rate. While the concept of workforce and affordable housing have gotten more attention over the last decade, these topics will likely come to the fore much more so in the coming months, especially as the federal eviction moratorium under the CARES act expires in late July. Median real income per capita over the last decade has increased at a pace of 1.9% nationally, per the Bureau of Economic Analysis. With rents increasing over 7% over the same time period, it is unlikely that this issue will be resolved without some sort of large-scale government intervention, which would likely mean increased supply and decreased rents.