Apartment sellers may soon face a choice between lower prices and fewer deals. Multifamily sales hit their second-highest level in four years in the third quarter, according to preliminary data cited by Marcus & Millichap. Now higher interest rates threaten to slow that pace, even as the shrinking construction pipeline is starting to favor owners.

In its November Housing Research Brief, the firm said higher borrowing costs could limit how much debt buyers can use for acquisitions. That would widen the gap between what buyers can pay and what sellers expect to get. To close that gap, sellers may have to accept lower valuations, and deal volume could slow while pricing adjusts.

The longer view is better. Marcus & Millichap said improving property cash flows could help offset the pressure from financing costs over time. The supply data shows why.

New Supply Falls To A Decade-Plus Low

About 550,000 multifamily units were under construction in the third quarter, the lowest count in more than a decade. Demand held up even though hiring slowed. Renters absorbed more than 56,000 units during the quarter, while U.S. job growth fell to 152,000 from 242,000 in the prior quarter.

Fewer new units competing for renters gives owners more room to push occupancy and cut back on incentives. That kind of operating improvement is what could eventually make today’s financing costs easier to absorb.

Sun Belt Markets Show The Strongest Demand

Sun Belt markets kept posting some of the strongest absorption relative to existing inventory. Marcus & Millichap pointed to Austin, Jacksonville and Tampa, where upcoming deliveries look more manageable next to recent demand. The firm said vacancy in those three markets could edge down in the near term.

Concessions Are Starting To Fade

Nationally, the share of apartments offering concessions fell to 14.5% in September, down from a post-pandemic peak of 17% in May. Class C properties saw the sharpest drop over that period but still had the highest share of units offering incentives, at 18.1%.