Central U.S. Multifamily Market Outlook 2026

Authored by: Derek Taylor, Managing Partner, Granite Harbor Capital | Mariner Capital Opportunity Fund I

Over the past several years, the multifamily investment landscape has undergone a significant transition. Rising interest rates, elevated construction costs, and a historic wave of new supply have reshaped underwriting assumptions across the United States. Yet amid this turbulence, the multifamily sector continues to demonstrate remarkable resilience.

At Granite Harbor Capital, through the Mariner Capital Opportunity Fund I, we focus our strategy on secondary and tertiary markets across the Central United States—including certain Texas markets, Oklahoma City, Kansas City, St. Louis, Northern Illinois, Milwaukee, Madison, and the Twin Cities. These regions sit at the intersection of affordability, economic stability, and demographic demand.

As we assess the current market environment, several key themes are shaping multifamily investment opportunities across these markets.

A Transitional Moment in the Multifamily Cycle

The U.S. multifamily sector is emerging from a period defined by two competing forces: historically strong renter demand and an equally historic surge in new apartment deliveries.

According to Cushman & Wakefield, approximately 355,000 apartment units were absorbed nationally in 2025, making it one of the strongest demand years in the past quarter century. At the same time, roughly 400,000 units were delivered, temporarily elevating vacancy rates to about 9.3% nationally, the highest level on record.

While this supply wave created short-term pressure on rents and occupancy, it also represents the peak of the current development cycle. The construction pipeline has already contracted significantly—falling roughly 50% from its peak, largely due to higher financing costs and reduced access to capital.

Colliers research similarly notes that new development starts have slowed materially, driven by interest rate volatility, elevated construction costs, and more cautious capital markets.

For long-term investors, these dynamics mark an inflection point: supply pressure is temporary, but structural housing demand remains intact.

Structural Demand for Rental Housing Remains Strong

Despite cyclical fluctuations, several structural drivers continue to support the multifamily sector.

Demographic trends, housing affordability constraints, and elevated mortgage rates have pushed more households toward renting. Cushman & Wakefield notes that strong household formation—combined with high barriers to homeownership—has sustained a large renter base even during economic uncertainty.

At the same time, the United States faces a persistent housing shortage that continues to support long-term rental demand. CBRE’s outlook emphasizes that multifamily remains one of the most preferred real estate asset classes among investors because of these strong underlying fundamentals.

This dynamic is especially pronounced in the Central United States, where many markets remain relatively underbuilt compared to faster-growing Sunbelt regions.

The Case for the Central U.S. and the Midwest

In recent years, national capital flows have been heavily concentrated in large coastal cities and Sunbelt metros. However, institutional investors are increasingly rediscovering the Midwest and Central U.S. markets.

A notable example occurred in 2025 when one of the nation’s largest apartment owners acquired over $500 million of Midwest multifamily properties, citing the region’s chronic housing shortage and stable rent growth outlook.

Several factors are driving renewed interest in these markets:

1. Affordability Advantage

Central U.S. cities offer significantly lower cost-of-living compared with coastal markets, making them attractive destinations for both residents and employers.

Average rents in cities such as Kansas City, St. Louis, and Milwaukee remain substantially below national averages, supporting continued demand even during economic slowdowns.

2. Stable Economic Drivers

Many Midwestern markets benefit from diversified economies anchored by:

• Healthcare
• Education
• Manufacturing
• Logistics and distribution
• Financial services
• Government employment

This diversity tends to produce steadier employment cycles than markets reliant on a single industry.

3. Limited New Supply

Unlike many Sunbelt markets that experienced aggressive development over the past five years, many Midwestern cities have seen relatively modest new construction.

In fact, some markets are experiencing a growing development gap, as higher construction costs make new projects difficult to pencil at achievable rent levels.

This creates a favorable environment for existing multifamily assets—particularly value-add properties that can be repositioned without requiring new development.

Why Secondary and Tertiary Markets Are Increasingly Attractive

For real estate investors, the opportunity today is increasingly found in markets just beyond the primary institutional targets.

Secondary markets such as Oklahoma City, Kansas City, and Madison—and tertiary markets throughout Northern Illinois and Wisconsin—often share several characteristics:

• Population growth driven by regional migration
• Lower barriers to entry for investors
• Limited institutional ownership
• Greater pricing inefficiencies

These markets also tend to exhibit lower volatility during real estate cycles because they are less dependent on speculative development.

Importantly, they also offer higher cap rates relative to primary markets, which is particularly valuable in a higher-interest-rate environment.

Capital Markets: Pricing Discovery and Opportunity

Transaction activity across the multifamily sector slowed significantly between 2022 and 2024 as buyers and sellers struggled to align on pricing expectations.

However, by 2025 the market began to stabilize. According to industry research, buyer sentiment improved as underwriting assumptions normalized and debt markets gradually reopened.

For disciplined investors, this period of price discovery has created opportunities to acquire well-located assets at more attractive valuations than were available during the peak of the previous cycle.

At the same time, fewer new developments are moving forward, setting the stage for tighter supply conditions over the next several years.

Looking Ahead: The Next Phase of the Multifamily Cycle

As we look toward the remainder of this decade, the multifamily sector appears poised for a gradual recovery phase.

Three trends are particularly important:

1. Supply is Declining
Development starts are falling rapidly due to capital constraints and construction costs.

2. Demand Remains Durable
Household formation and affordability challenges continue to support renting.

3. Investment Capital Is Returning
Institutional investors are increasingly looking beyond traditional gateway markets for stable cash flow.

These forces are likely to favor well-located multifamily assets in markets with strong employment bases and limited new supply.

Our Investment Approach

At Granite Harbor Capital, the Mariner Capital Opportunity Fund I is positioned to capitalize on these dynamics.

Our strategy focuses on:

• Secondary and tertiary markets in the Central United States
• Value-add multifamily investments with operational upside
• Markets with strong employment drivers and population stability
• Assets where disciplined management and capital improvements can create value

We believe that the next cycle of multifamily investment opportunity will not be defined solely by large gateway cities or Sunbelt growth markets.

Instead, it will be driven by the steady, resilient communities across the heart of the country.

Conclusion

The multifamily market today is navigating a period of adjustment, but the underlying fundamentals remain compelling. Demand for rental housing continues to be supported by demographic trends, affordability constraints, and a structural housing shortage.

For investors willing to look beyond traditional core markets, secondary and tertiary cities across the Central United States offer a compelling combination of stability, affordability, and long-term growth potential.

In our view, these markets represent one of the most attractive opportunities in the current multifamily cycle—and a key focus for the Mariner Capital Opportunity Fund I.

What stands out across these Central U.S. markets is that the best risk-adjusted opportunities are increasingly found where new supply is decelerating faster than demand. Kansas City and St. Louis still require more caution because of recent deliveries, but Milwaukee, Madison, the Twin Cities, and selected northern Illinois submarkets appear better positioned for tightening fundamentals over the next 12–24 months. Oklahoma City remains attractive as a steadier, lower-volatility market, particularly because its construction pipeline has contracted meaningfully. Across the group, the common thread is that these markets generally offer better affordability, more rational future supply, and less speculative overbuilding than many large Sun Belt metros, which is exactly why they remain compelling for a disciplined fund manager.

Central U.S. (Non-Texas) Markets:

Texas Markets: