There’s Plenty of Resilience in the Multifamily Sector

The multifamily outlook remains positive across both Northern and Southern California, though overall sentiment has dipped slightly relative to the Summer 2025 Survey. While still firmly in positive territory, sentiment declined slightly in most regions, reflecting a more cautious outlook heading into 2026. The Inland Empire stands out as an exception, posting a notable improvement in sentiment relative to last summer. Overall, multifamily remains one of the most resilient segments of the commercial real estate market.

Songyi Wang, director of investments, Greystar, and Tim Hutter, partner, Allen Matkins, join us to discuss the themes impacting the multifamily sector in the Winter 2026 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey.

Let’s start with what regions or cities are best positioned for new development. What fundamentals are driving this development?

Tim: We continue to see a lot of activity in core markets where major cities have demonstrated they are friendly to real estate development over a number of years. People know the areas, like Orange County and San Diego, where there is at least a tolerance for new development and sometimes an eagerness and appetite to bring it. One thing that’s a little bit different: I’m starting to see a fair amount of activity in the Inland Empire in small subdivision projects potentially built-to-rent. This requires establishing new relationships with planning departments and development services in these smaller jurisdictions, but it is encouragingto see developers looking into areas that they previously were not focusing on.

Songyi: In 2025, we saw multifamily transaction volume increase across almost all the major West Coast markets. Transactions in Los Angeles, San Jose, Silicon Valley, and Seattle have all grown by 50% year over year. However, overall trade volume across the West Coast is still only about half the peak level in 2021. Given the abundance of available debt from both agencies and debt funds, owners continue to have refinancing options when sales pricing comes in softer than expected, so a good share of deals that went through a full marketing process in 2025 ended up being refinancings or recaps.

Have you seen an uptick in affordable housing development? What’s causing it?

Tim: As people continue to wait for market conditions to improve, there’s going to be an advantage, whether strategic or financial, for the affordable developers who can come in and set up a capital stack that’s less reliant on market forces and on market rates. In the city of San Diego proper, we're seeing a lot of activity with offsite affordable units. We’re seeing some affordable deals that didn’t work previously are viable by cobbling together a number of units coming from market-rate buildings or mixed income buildings. Offsighting may be something that folks in other cities or even at the state level may want to look at to see if it's a way to help increase the overall supply of units and frankly, help both market rate and affordable projects come out of the ground.

Songyi: The active participation of affordable converters is one trend that we observed on the transaction front in California over the last 12 to 18 months. There are conventional multifamily deals in San Jose and the East Bay, including two very large, over $300 million transactions sold to groups that are pursuing an affordable conversion strategy. These groups have been really active and competitive in the bidding process, especially in high-income areas where rents are already naturally more affordable.

California has passed many new housing bills. Have you seen a particular piece of legislation impact development plans?

Tim: The most impactful changes so far stem from reforms signed in summer 2025: AB 130 and SB 131. These regulatory changes have encouraged developers to think creatively about projects. We’ve seen a number of AB 130 checklists, many produced within our own firm. Layering in new CEQA strategies and tools alongside some changes to the Permit Streamlining Act, which now requires shorter response times from jurisdictions and agencies that are responding, has been a really welcome change. We’re still seeing how that’s going to play out since we’re only seven or eight months into the process, but it is exciting to see the number of developers reaching out to us, looking for guidance on how they can implement those reforms.

Are there other trends you are seeing?

Tim: Depending on where you are, you’re halfway or slightly more than halfway into housing element update cycles for regional needs. We’re now reaching a point where the state may evaluate which cities are failing and why. That may be an opportunity in the next couple of years for developers and consultants and lawyers to look at individual cities and, working with the Department of Housing and Community Development, try and identify areas for improvement and develop policies accordingly. We’ll see how that plays out, but it’s something to be on the lookout for over the next year or two.

Songyi: Going into 2026, buyer appetite continues to be really strong. Many groups are coming off very successful capital races and expect to be net buyers this year across a variety of strategies, from core-plus to value-add to opportunistic. But that appetite is extremely focused, with the majority of the buyers targeting 1990s or newer vintage assets in well-located areas with strong demographics. They’ll be willing to lean-in in terms of underwriting, betting on aggressive assumptions in brand growth, concession burn off, and tight exit cap rates. Meanwhile, the market tends to be really bifurcated with very limited interest in older vintage workforce assets in class C locations. We expect to see a wide diversion in cap rates with really high-quality deals trading in the low four cap range and assets in workforce locations trading in the high five or even six cap range in major West Coast markets.

Tim: I think there is still a ton of pent-up demand. People want to live and work in California and housing is expensive, so there’s a desire from the development community to build here. As long as the state has a housing deficit, there are going to be opportunities. Even in a market where we are seeing multifamily really dominate housing, there’s still more opportunity around the corner and maybe even some opportunity where we start to see some multifamily housing for sale on the condo side. I know people are starting to have those conversations about how do we spur that on, which I think is encouraging.