Signs of momentum are emerging in the multifamily investment sector as core and value-add underwriting metrics improved in the second quarter of 2025, according to data from CBRE Research. While the findings offer an encouraging snapshot, it’s important to note that they are based on just 19 markets, limiting broader generalizations.
For core multifamily assets, going-in cap rates dipped slightly, falling by six basis points to 4.75% in Q2, down from 4.81% the previous quarter. Exit cap rates also declined, moving from 4.99% in Q1 to 4.95%. This widening of the spread between going-in and exit cap rates—from 18 to 20 basis points—signals subtle shifts in investor expectations over hold periods.
Core unlevered internal rate of return (IRR) targets inched up to 7.70% in Q2 from 7.67% in Q1. However, this increase was largely skewed by a notable 100-basis-point jump in Denver’s surge within the category, driven by short-term regional factors.
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Value-add assets saw similar movement. Going-in cap rates dropped by eight basis points from 5.28% to 5.20%, while exit cap rates declined from 5.00% to 4.96%. The spread here widened more significantly—jumping from 11 basis points in Q1 to 18 in Q2.
Unlike core assets, IRR targets for value-add properties ticked down slightly, decreasing by two basis points to 9.58% in Q2.
Among the 19 markets CBRE tracked, core IRR targets remained stable in 14. However, slight increases were observed in Denver, Los Angeles, Miami and Philadelphia. Chicago was the only tracked market showing a decrease.
As for investor sentiment, the outlook continues to shift. CBRE noted that sentiment indicators are based on the expert opinions of its local investment professionals, though survey feedback from clients also played a part in forming these assessments.
Positive sentiment among core-asset buyers slipped to 56% in Q2 from 65% in Q1, reflecting a more neutral stance. Still, investors remained more optimistic than they had been at the end of 2024. Sentiment among value-add buyers, by contrast, rose significantly—jumping from 48% in Q1 to 61% in Q2.
Rent forecasts also showed marginal improvements. For core properties, average annual growth underwritten over the first three years increased from 2.7% to 2.8%. For value-add properties, it rose from 3.1% to 3.3%. CBRE attributed the uptick to continued recovery in rent performance across many markets.
Coastal cities such as Boston, Los Angeles, San Francisco and Seattle—as well as Houston—saw the most notable improvements in buyer and seller sentiment. Five markets—Austin, Chicago, Dallas, Los Angeles and Tampa—experienced going-in cap rate compression for core assets, while Denver was the only tracked market to register a slight increase. Still, all shifts remained within an absolute range of 25 basis points, indicating relative market stability.
Several metro areas, including Austin, Dallas, Los Angeles, Philadelphia and Washington, D.C., saw second-quarter going-in cap rates decline from the previous quarter. Notably, Denver experienced a marked increase of 63 basis points.
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