A report from S&P, headquartered in Lower Manhattan, says apartment vacancy is ticking upward.

NEW YORK CITY—Multifamily has captured a greater share of new CMBS issuance this year, with conduits backed by apartment properties accounting for 17% of originations in the first quarter, compared to 7% the year prior. However, a report from Standard & Poor’s raises the question of whether new issuance has come late to the party, although the sector’s fundamentals are still strong.

“Although we believe the outlook for property fundamentals over the next few years is still good, supply growth and increased home sales activity have started to slow things down in the multifamily sector,” write senior credit analyst Larry Kay and his co-authors at S&P. Citing the results from the most recent National Multifamily Housing Council quarterly survey of senior executives in the industry, they write that “apartment market conditions have been weakening. A market tightness index below 50 indicates that market conditions–including vacancies and rent increases–are softening, while a sales volume index below 50 signifies that property sales are slowing. Even though apartment activity is typically slow in November through January, the last time either of these two indices indicated improving conditions was in July 2013.”

Further, Kay notes that although the amount of multifamily CMBS delinquency declined once more in the first quarter, “it declined the least of the property types. Multifamily also had the sharpest property loss severity rate increase in the quarter, jumping to 34.1% from 9.4%” in Q4 2013. That being said, the report notes that late-pays in multifamily have shown the steepest decline of any sector since peaking in 2010.

According to CBRE, C&P notes, multifamily vacancy in Q1 increased 10 basis points to 4.9%, while rent increases have declined for two consecutive years. “Although we believe the outlook for property fundamentals over the next few years is still good, supply growth and increased home sales activity have started to slow things down in the multifamily sector. And as with credit performance, it appears that multifamily property fundamentals have seen their best days.”

In the wake of the Great Recession, multifamily completions dropped to historical lows, and then began climbing again last year. “With increasing supply, class A apartments could feel the brunt of the competition pressuring this segment’s rents,” the report states. “If rents in this segment soften, CMBS multifamily collateral (typically characterized by class B and C apartments) could be affected by renters trading up to these class A apartments, leaving its apartments with higher vacancies.”

Although multifamily credit performance could be showing signs of encroaching age, “issuance levels are taking on a new life,” the report states. “In 2009, Freddie Mac introduced its multifamily K-series securitization program. Its entrance into securitization didn’t have much effect on the CMBS market in 2009 and 2010, when it was virtually nonexistent.”

In 2011 and 2012, however, “even as CMBS new issuance began to recover, Freddie Mac’s competitive presence kept CMBS multifamily volume low,” according to S&P. “Over the last year, CMBS multifamily issuance activity has increased,” while Freddie’s origination volume has fallen during the same time period.