The multifamily sector continues to demonstrate strength and resilience amid economic uncertainty. As shifting market dynamics challenge various industries, we believe multifamily real estate remains a vital and attractive sector, supported by strong demand fundamentals.

By analyzing key macroeconomic trends, demographic shifts, and sector-specific factors, here I explore why multifamily (including build-to-rent and manufactured housing communities) investments are expected to support long-term success and performance.

Macroeconomic Review

The U.S. economy is facing a mix of familiar and new challenges. Tariffs and the looming threat of government spending cuts have created a climate of significant uncertainty. While most economists agree that tariffs negatively impact economic welfare, some policymakers may see them as necessary tools for foreign policy or national security purposes. So far, the direct hit to the economy has been moderate — but the longer the uncertainty lingers, the higher the risk that we could see a slowdown, or even slip into recession territory. That said, should tariff policy induce heavy reinvestment into manufacturing domestically, we could see enhanced productivity gains, improving longer term GDP forecasts.

Despite the turbulence, some longer-term patterns are holding steady:

• Nominal GDP Growth and Interest Rates: The 10-year Treasury yield is down approximately 40 basis points since mid-January 2025, reflecting economic fundamentals pointing to slow growth, and disinflation. With this, we expect nominal GDP growth to stay in the 2.5 to 5.0 percent range, mirroring trends we saw in the 2010s.

• Inflation: Inflation is cooling with headline Consumer Price Index (CPI) growth of 2.41 percent in March 2025. CPI excluding shelter is at 1.48 percent. This suggests that the transitory increase in inflation has now reverted to what we would consider typical given the economic backdrop. Long-term factors like low birth rates, an aging workforce, and excess capacity of goods production globally are helping to keep inflation in check.

• Recession Watch: After the tariff announcements, early indications from financial markets reflected economic distress, seen in widening credit spreads and volatile equity markets. This reaction has moderated in recent weeks as markets digest the new information. A steepening yield curve after inverting and a slowdown in manufacturing seen in the ISM survey are flashing caution. However, strong income growth and a resilient job market, along with a decades-long shift away from manufacturing and consumer goods and toward services, are providing crucial support to economic stability.

While recession risk remains somewhat elevated, we continue to see multifamily as an attractive investment option. Multifamily has shown great resiliency during economic contractions. Even during the Great Financial Crisis of 2008-2009, income in the sector remained positive, with negative total returns driven by cap rate expansion. Should a recession again bring uncertainty, many people will likely choose to rent over own until they have the confidence to make mortgage payments and take on maintenance responsibilities. This suggests that well-structured, properly underwritten multifamily investments that utilize moderate leverage and long-term debt can allow investors to ride out economic downturns.

Strong Fundamentals Fuel Multifamily Growth

The multifamily sector has shown remarkable resilience through this uncertain economic environment. Despite concerns about oversupply following the 2021/2022 construction boom, early 2024 showed stronger-than-expected absorption and stabilizing occupancy rates. Now, with occupancy continuing to rise in the face of record completions, the multifamily sector is positioning itself for a potential period of renewed growth.

Here are a few key highlights:

• Inventory and Rent Growth: By 2027, net inventory growth is expected to level off at just over 1% of existing supply. This sets the stage for stronger rent growth and the possibility of future undersupply.

• Property Values: After pulling back by 13.50 percent, per-unit apartment values in the NCREIF ODCE Index bottomed out in early 2024 and have resumed gains in recent quarters despite elevated interest rates, highlighting the robust investment demand for multifamily

• Investment Signals: While the 10-Year Treasury rate has moved up significantly from the lows, cap rates have expanded more moderately, narrowing the gap between cap rates and the 10-year Treasury. This indicates that investor appetite remains strong, with buyers believing they can achieve solid growth and long-term returns despite higher financing costs.

• Demographic Tailwinds: Affordability challenges, shifting demographics, and changing immigration/domestic migration patterns are expected to continue to drive demand for multifamily housing.

• Manufactured Housing and Build-to-Rent: We believe these subsectors of multifamily are stand outs among the crowd. Both build-to-rent and manufactured housing communities have unique fundamentals (such as affordability and demographic shifts) that make these a compelling housing option for evolving renter needs.

Stable Growth Expected Ahead

Even as the broader economy faces potential headwinds, the residential sector is showing resilience. Tightening supply, strong fundamentals, and steady lender support are creating a foundation for stable, long-term growth. Whether the next phase of the economic cycle brings continued expansion or a downturn, we believe multifamily real estate remains a bright spot offering both stability and investment appeal in a shifting landscape.

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This article was originally published by Inland. Please contact Inland with any questions.

Opinions expressed reflect the current opinions of Inland Real Estate Investment Corporation (Inland Investments) as of the date appearing in the materials only and are based on Inland Investment’s opinions of the current market environment, which is subject to change. Investors, financial professionals and prospective investors should not rely solely upon the information presented when making an investment decision and should review the most recent offering materials for the applicable investment program. Certain information contained in the materials discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.

Sources:

1 Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis [DGS10], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DGS10

2 CPI: https://fred.stlouisfed.org/series/CPIAUCSL; CPI excluding shelter: https://fred.stlouisfed.org/series/CUUR0000SA0L2; CPI: Shelter Only component: https://fred.stlouisfed.org/series/CUSR0000SAH1

3 RealPage – Data Download

4 NCREIF – ODCE Returns at Share Apartment Total Return– Q4 2024

5 NCREIF – Apartment Transaction Cap Rates – Q4 2024, FRED Database

6 Bureau of Labor Statistics, John Burns Research and Consulting LLC (Data: July 2024; Pub: September 2024) As seen in Burns U.S. Demographics Insights and Strategies.

7 National Association of REALTORS® | 2024 Profile of Home Buyers and Sellers