Insights & Perspectives

Supply is falling, demand is holding and rents are turning, and the evidence suggests a recovery is taking shape even with the 10-year Treasury above 5%.

By Luis Andrés Yanes, Director of KBIS Capital

Key takeaways

- Rental housing economist Jay Parsons describes 2026 as an inflection point, with multifamily fundamentals improving while capital markets cool.

- New supply is falling fast. CoStar reports apartment starts at their lowest quarterly level since 2011, setting up an undersupplied 2028-2029.

- Apartment occupancy and rents are turning in the Sun Belt, and senior housing occupancy has reached its highest level since before 2008.

- Higher rates are real, but they are also slowing construction and creating recapitalization opportunities for disciplined capital.

- KBIS Capital's co-GP strategy places investors closer to where value is created, alongside cycle-tested sponsors.

Fundamentals Improve as Capital Cools

After three years of adjustment, the U.S. multifamily market is sending its clearest positive signals of the cycle.

On a recent episode of his podcast, The Rent Roll, rental housing economist Jay Parsons described 2026 as a clear inflection point. He noted that apartment fundamentals are improving while capital markets cool, a divergence he said he has not seen in 25 years.

His conclusion is that capital usually follows fundamentals.

Steve Turner of Morgan Stanley Investment Management sees it similarly, describing the firm's outlook for real estate as very positive and pointing to greater debt availability, easing lending standards and cap rates that have largely stabilized and begun to compress in some markets.

For KBIS Capital, a private real estate platform that provides investors access to institutional-quality opportunities across U.S. markets, the current moment marks a shift from a market defined by financing pressure to one increasingly defined by supply and demand.

“For three years, the conversation was about what higher rates were doing to valuations. Today it is about what falling supply and steady demand are doing to occupancy and rents,” says Luis Andrés Yanes, Director of KBIS Capital.

Supply Has Turned the Corner

Parsons noted that about 231,000 apartment units have been delivered nationally this year, the lowest in seven years and roughly half the approximately 450,000 delivered in the first nine months of 2024.

The pipeline points to further declines. According to CoStar, apartment construction starts fell to about 55,000 units in the first quarter of 2026, 73% below the early-2022 peak and the lowest quarterly level since 2011. Units under construction fell to about 579,000, down more than 50% from their early-2023 peak.

Parsons expects any restart in construction to be U-shaped rather than V-shaped, partly because construction costs are rising again. In his view, projects started today will deliver into an undersupplied market in 2028 and 2029.

Orlando shows the shift at the local level. Construction there is down 65.9% from its 2023 peak and 40% year over year, according to CRE Daily, and Cushman & Wakefield expects development to keep declining for three to five years.

Demand Is Running Ahead of Expectations

While supply contracts, renter demand has proven stronger than expected.

Parsons, citing RealPage data, pointed out that about 345,000 units were absorbed in the first nine months of 2026. That puts 2026 on pace for a top three to five year, well above start-of-year forecasts.

According to Parsons, absorption is clearly exceeding new supply.

In Orlando, about 6,400 units have been absorbed this year, outpacing completions for the first time since 2021, according to CRE Daily.

The metro's population grew 11.5% between 2021 and 2026, compared with 6.8% for Miami, according to Cushman & Wakefield. Marcus & Millichap reports that Orlando added 16,000 jobs in the first four months of the year, nearly matching the 18,500 added over the previous two years combined.

Vacancy Is Falling and Rents Are Firming

Stronger demand is now showing up in occupancy and pricing.

Parsons, citing CoStar data, noted that national apartment vacancy is falling for the first time since early 2022, to about 7.8%, roughly 70 basis points below its late-2025 peak, with stabilized vacancy improving as well.

Apartment List's latest report puts its national vacancy index at 7.0% in September.

Rents are following. According to Parsons, effective rents are up 2.8% year to date based on RealPage data, the best performance in four years, and up 1.5% year over year, the first reading above 1% since June 2023. He expects rent growth near 2% by year end.

In August, CoStar raised its projected fourth-quarter 2026 rent growth from 0.5% to 1.9%. Grant Montgomery, CoStar's national director of multifamily analytics, credited progress in absorbing excess inventory, “enabling market conditions to gradually tighten.”

The Sun Belt Turnaround

Parsons noted that Austin, Denver, Phoenix, Tampa, Dallas, Salt Lake City, Jacksonville, Orlando, Raleigh and San Antonio have each improved by more than 400 basis points in year-over-year rent change since March.

According to Parsons, West Palm Beach, Miami, Fort Lauderdale, Atlanta, Jacksonville, Salt Lake City, Orlando, Las Vegas and Raleigh are back to slightly positive rent growth, and Austin has turned positive after three years of cuts.

Parsons described the Midwest and Northeast as steady, with rent growth of roughly 2% to 4%, and flagged Columbus, Omaha and Madison for more strength in 2027.

The recovery is still uneven within markets. In Orlando, the I-Drive submarket sits at 88.3% occupancy with the metro's largest pipeline, while Eastside, North Orlando and Windermere are above 93% with no new deliveries, according to CRE Daily.

“National data shows the cycle is turning, but we underwrite every opportunity at the submarket level, where supply, jobs and rents can look very different from the headline,” explains Yanes.

Structural Demand Beyond Multifamily

The same supply and demand imbalance is visible in other parts of residential real estate.

In senior housing, occupancy across the 31 primary markets tracked by NIC MAP reached 90.4% in the third quarter of 2026, according to GlobeSt. It was the 21st consecutive quarterly gain and, according to NIC MAP, the highest occupancy since before the 2008 financial crisis.

New supply is not keeping pace. Inventory growth has been running near a record low of 0.4%, and NIC MAP estimates the sector needs more than 100,000 new units a year through the late 2030s to hold 90% occupancy, against a current development pace of about 10,445 units a year. NIC's Lisa McCracken described a widening gap between “what Baby Boomers will need and what the industry is producing.”

Morgan Stanley's Turner highlighted value-add strategies with strong cash flow and low sensitivity to financing, along with alternative sectors supported by structural tailwinds, as areas of focus in an increasingly selective market.

Optimism in a Higher-Rate Environment

On September 16, 2026, the Federal Reserve raised its benchmark rate by 25 basis points to a range of 3.75% to 4.00%, its first hike since July 2023. Two days earlier, the 10-year Treasury yield crossed 5% for the first time since October 2023, according to Bloomberg, and Parsons notes it remains above that level.

Higher rates affect real estate in several ways.

First, debt costs more and lenders size loans more conservatively, which limits leverage and tightens debt coverage.

Second, higher yields on safe assets put pressure on valuations, since property returns must compete with a higher risk-free rate.

Third, owners who must refinance face real strain. Parsons noted that most of the stress sits with older assets bought at the 2021-2022 peak with floating-rate debt.

Fourth, development becomes harder to finance, which keeps starts low and supports a healthier supply balance ahead.

Finally, rising mortgage rates may keep some would-be first-time buyers renting longer, according to Apartment List.

That is why fundamentals can keep improving while rates rise. Rates shape what investors pay for an asset, while occupancy and rents depend on how many units exist and how many households need them.

“Higher rates make structure more important. The demand for housing is still there, and much of the supply that would have competed with today's assets was never started,” says Yanes.

Where Disciplined Capital Finds Opportunity

KBIS Capital maintains that a higher-rate market also opens doors for investors with patient capital and a clear process.

First, recapitalizations are increasing. Owners facing loan maturities on assets bought at peak valuations often need fresh equity to refinance, creating gaps that disciplined capital can fill on negotiated terms.

Second, pricing is becoming more rational. Parsons noted that buyers are retrading and price discovery is returning, bringing entry prices closer to what current income can support.

Third, value-add business plans with modest leverage and durable cash flow are less exposed to financing costs.

Fourth, selective development still works. Shovel-ready projects underwritten with conservative rent assumptions can deliver into the supply-constrained market Parsons expects in 2028 and 2029.

Fifth, GP-level capital is scarce. When equity is harder to raise, sponsors value partners able to commit at the GP level, which supports better terms.

In every case, results depend on sponsor quality, entry basis and a structure that holds up if conditions change.

Why Co-GP Positioning Matters Now

KBIS Capital invests through a programmatic co-GP strategy built for this stage of the cycle.

In simple terms, a co-GP invests alongside the lead sponsor in the general partner capital of a transaction, sitting closer to the management structure than a traditional limited partner and sharing in the economics the sponsor generates.

The structure also keeps protections typical of an institutional investor, such as priority in the return of invested capital within the distribution waterfall.

KBIS builds recurring partnerships with a select group of vertically integrated, middle-market sponsors that have operated through multiple cycles across multiple transactions.

The focus is residential, with multifamily as the anchor alongside student housing, senior housing, and build-to-rent, together with medical outpatient buildings, primarily in Sun Belt and Midwest markets.

In a recovery, much of the value is created as the sponsor leases up, improves operations and positions assets for sale. Investors in KBIS Capital's opportunities participate at that level, while sponsor selection and structure help manage downside risk.

“The business plan is where value gets created. Our co-GP strategy places our investors alongside that execution from day one, with operators who have already managed through more than one cycle,” says Yanes.

Outlook: Disciplined Optimism

Speaking on Parsons' episode, CoStar's Grant Montgomery said that after one more strong spring and summer leasing season, real pricing power could return by this time in 2027.

Parsons is careful to call this an inflection rather than a full recovery. Rent growth remains below its pre-COVID trend and below expense growth, concessions are likely to persist into 2027, and markets such as Charlotte, Raleigh and Miami still face elevated new supply.

Morgan Stanley's Turner makes a similar point: the exceptional pricing opportunities created by the 2022 correction are becoming less pronounced, and the market is becoming more selective.

In KBIS Capital's view, that combination favors investors who pair conviction with discipline. As capital begins to follow the fundamentals, investors positioned alongside proven sponsors, with structures built for a higher-rate environment, are well placed to benefit as the cycle turns.

To learn more about KBIS Capital's approach, contact investorrelations@kbiscapital.com.

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