Multifamily is no longer a one-way bet. It is a market-by-market call.

Multifamily is no longer a one-way bet. It is a market-by-market call.

For much of the past decade, multifamily sat at the top of regional bank CRE portfolios as the most defensive asset class.

That comfort is now being tested, not by collapse, but by divergence.

At the national level, fundamentals softened through late 2025.

Vacancy has climbed to its highest level in more than a decade, while rents are effectively flat year-on-year and declined quarter-on-quarter. Supply is still outpacing demand, even as construction starts slow.

But the real story is not national.

It is deeply local.

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Markets under pressure

Supply-heavy Sun Belt metros are feeling the strain.

Cities like Austin, Charlotte, Raleigh-Durham, Phoenix, and Washington, D.C. are all operating with high single-digit to double-digit vacancy rates, driven by heavy deliveries in 2024 and 2025.

In many of these markets, rent growth has stalled or turned negative, and concessions, not asking rents, are doing the work

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Markets holding up better

By contrast, supply-constrained metros continue to show resilience.

New York City, Chicago, San Francisco, Boston, and parts of New Jersey remain tight by historical standards, with lower vacancy and steadier rent performance. Limited new supply is acting as a natural stabilizer.

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Why this matters for regional banks

Multifamily risk today is less about headline vacancy spikes and more about benchmark drift.

Loans originated in 2021 and 2022 assumed sustained rent growth and fast lease-up. In today’s environment, even modest underperformance versus local benchmarks can erode DSCR and refinancing flexibility.

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What portfolio monitoring needs to focus on now

• Benchmark vacancy and rent performance by metro and submarket, not nationally

• Track concessions and effective rents, not just asking rents

• Identify markets where supply pressure persists despite slowing deliveries

• Re-underwrite refinance assumptions for 2026 and 2027 maturities using current local fundamentals

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The takeaway is simple.

Multifamily has not broken, but the margin for error has narrowed.

For regional banks, effective CRE portfolio monitoring now depends on seeing local stress early, before it shows up in delinquencies or downgrades.

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