Rising Vacancy + Rent Pressure: Why Multifamily Credit Markets Are Turning Risky

Multifamily Markets in Trouble

The most obvious answer for investors considering pivoting away from office space is multifamily real estate. But is investing in apartment new builds as safe a bet as it once was?

There are indicators that the multifamily market—long considered the safest corner of real estate—now faces its own headwinds. A wave of new apartment supply, softening rent growth, and stubbornly high interest rates have compressed margins for developers and owners alike. For lenders and investors, that means reevaluating credit exposure and shortening duration risk.

After nearly a decade of rent growth turbocharged by the surge in demand during the pandemic, the multifamily market is stagnating, with growth of just 0.2% recorded this year, according to RealPage numbers. The multifamily building frenzy in response to unprecedented demand for housing in popular relocation areas like the Sunbelt has finally caught up with this segment of the market. 

The situation is unlikely to improve in 2026 and beyond; with interest rate decreases to below-6% levels on the horizon, many renters will inevitably become homeowners in the coming years. 

These are normal market fluctuations that inevitably result from supply-and-demand imbalances and economic ups and downs. However, what investors must understand going forward is that there are larger shifts at play here—they are societal, not merely economic, and likely to be permanent. 

The fates of the office market and multifamily segments are profoundly interlinked. Both are suffering from a historic shift in how Americans work, and what is happening to urban areas as a result. 

A substantial majority of people are no longer prepared to simply rent an apartment close to where their office is; they no longer have to. Renters actively choosing multifamily developments are now likely doing so for other reasons, like great amenities or a walkable and exciting downtown area, where they can enjoy life outside work. 

Refining Your Portfolio Is Key

A multifamily investor’s biggest concern is no longer so much falling rents as uncertainty about long-term occupancy prospects.

The most obvious solution here is refining one’s portfolio-building strategy and shortening debt duration whenever possible. What does refining mean here? 

Think of the multifamily investing of years past as a blunt tool: You go wherever rents are currently the highest. Now, however, selecting where to invest requires a detailed understanding of the overall health of a specific metro area. What does it have to offer renters in the long term? 

A more refined portfolio cherry-picks multifamily investments that offer the best longitudinal occupancy rates. Going forward, this will be the best way for investors to mitigate risk, secure favorable financing, and protect their margins. 

Simply chasing rent growth just won’t do as a viable investment strategy in 2026. It’s all about choosing lower-risk, shorter-term investments in locations where multifamily real estate remains attractive for a plethora of reasons—not just the one reason (high rental yield) that was good enough circa 2019.

Connect Invest 

This is exactly where Connect Invest’s Short Notes come in. By funding diversified, short-term real estate debt investments, investors can earn fixed, high-yield interest while limiting exposure to long-horizon vacancy and rent risk. Connect Invest’s underwriting process actively stress-tests each project against occupancy and income fluctuations—so even if vacancies rise or rents fall, investor returns remain stable.

Instead of worrying about the next vacancy report, investors can keep their capital moving—and their returns steady—with Connect Invest’s data-driven approach to short-term real estate credit.