Cap Rates Do Not Always Move With The 10-Year Treasury

Cap rates do not move on a one-to-one basis with the 10-year US Treasury. The spread narrows and widens based on other factors such as investor perceptions of risk, relative market liquidity and growth in property income. The lines below:

  • Purple: 10 Year Treasury
  • Orange: Apartments
  • Green: Industrial
  • Red: Retail
  • Dark Blue: Office (Central Business District)
  • Light Blue: Office (Suburban)

Source: MSCI

Multifamily Expense Growth Has Slowed Dramatically

Though operational expenses in multifamily assets continue to grow and sit roughly 39% above where they were prior to the pandemic, the pace of increase has slowed to the lowest level since early 2021. Across nine operational expense categories, all but two – utilities and payroll – moderated over the last 12 months.

The most significant decline has been in insurance growth, which fell to just over 7% on an annualized basis in 1st quarter 2025. That compares to an incredible increase of 33.5% just one year prior. Taxes, another pain point for property owners as they account for roughly 30% of total OPEX costs, also registered a substantial drop. This time last year, taxes were growing by nearly 4% annually on average. But through the end of March 2025, the cost of taxes per unit on a national level have fallen 50 basis points (bps) year-over-year.

This theme of moderation has been seen across the country. All regions of the U.S. have seen expense growth fall below the change rates reported annually at the beginning of 2023 and 2024, albeit at varying levels. In total, two-thirds of regions registered an annual average expense growth in 1st quarter 2025 below their average growth in the five years ending 2019.

Source: RealPage

Companies Are Replacing Mom & Dad As Guarantors For Renters

There’s a burgeoning business in companies that will pay tenants’ rent if they can’t, but the price for the service isn’t cheap. The fee can be as low as 75% of one month’s rent, up to 150%.

If a renter defaults on a lease, the guarantor may cover the payments, but the renter is still on the hook. In this instance, the money is no longer owed to the landlord but to the guarantor.

A study from consulting firm Verified Market Research estimates the global rent-guarantor market will generate $775 million in revenue this year, which is up nearly 10% from 2024. And by 2032, it could nearly double and become a $1.53 billion industry, according to the study.

Source: Morningstar

Q1 2025 – Multifamily Transactions, Price Per Unit & Cap Rates

U.S. apartment transactions eased during the first three months of 2025, following historical trends. However, on a year-over-year basis, apartment sales (total dollar volume, number of properties, number of units and price per unit) were up.

Roughly 1,277 apartment properties changed hands at a value of $30 billion during 1st quarter 2025, according to MSCI Real Capital Analytics. Overall sales volumes were up 36% year-over-year but were well below 4th quarter 2024 levels when around 1,848 properties changed hands for nearly $48.2 billion. In addition, recent activity was well below the $53.6 billion quarterly average over the past five years.

The average price per unit remained high at $211,356 in 1st quarter, registering above $200,000 for 13 of the past 15 consecutive quarters. Prior to 2021, the per unit pricing never exceeded that threshold and averaged $151,000 from 2015 to 2019. Meanwhile, cap rates have been rising since reaching a pandemic-era low of 4.67% in 2nd quarter 2022. For apartment transactions occurring in 1st quarter 2025, cap rates averaged 5.65%, the highest in nearly nine years.

Source: RealPage