The third quarter of 2025 offered further confirmation that the local multifamily market across the Greater South Bay—stretching from LAX through Long Beach—has entered a period of stabilization. Much like what we observed last quarter, pricing metrics appear to have found a floor, and the market is gradually working through available inventory as the gap between buyer and seller expectations continues to narrow.
Transaction volume, a strong indicator of market sentiment, totaled 215 closed sales for multifamily properties of two units and above. That figure is only modestly higher than the 209 transactions recorded in the second quarter and effectively flat, but still notably above the trough levels reached when activity fell sharply in mid-2022. While nowhere near the feverish pace of 2020–2021—when historically cheap debt amplified demand—the consistency in sales demonstrates that buyers and sellers are increasingly finding alignment, even amid a higher-rate environment.
Pricing Metrics Hold Firm Across Key Categories
Income-based valuation metrics again held steady throughout the quarter. Gross rent multipliers averaged 15.4, identical to Q2 and effectively flat for nearly five consecutive quarters. Cap rates told a similar story at 4.6%, a level that has remained unchanged for more than a year after rising meaningfully from their 2022 lows near 3.6%.
Price-based indicators also barely moved. Average price per square foot came in at $510—down slightly from $514 but statistically insignificant—continuing the surprising resilience that began in late 2024. Price per door averaged $438,000, almost indistinguishable from last quarter’s $437,000.
Together, these metrics point to a market that has absorbed the majority of its value decline and is now operating in a narrow equilibrium range. After nearly a year of stability, the evidence increasingly suggests that the dramatic repricing driven by higher interest rates may have fully played out.
A Tale of Two Markets: 2-4 Units vs. 5+ Units
As has been the case throughout this cycle, there remains a pronounced split between smaller 2–4 unit residential properties and larger 5+ unit commercial multifamily assets. The divergence is driven primarily by financing.
Two-to-four unit buildings continue to benefit from residential lending dynamics and the lock-in effect of historically low 30-year fixed mortgages. As a result, valuations remain elevated, despite today’s borrowing costs in the mid-6% range. GRMs averaged 17 in the quarter, while cap rates came in at just 4.1%. Price per square foot reached a record $571—remarkable considering the broader turbulence in the commercial market.
In contrast, 5+ unit properties remain under heavy pressure as rolling loan resets work their way through the system. Hundreds of loans originated between mid-2020 and mid-2022—many on 3- and 5-year fixed terms—are now adjusting. Owners are increasingly forced to decide between refinancing at dramatically higher rates or selling at GRMs that are three to four turns lower than what they paid only a few years ago.
This financial strain continues to suppress valuations in the commercial segment. GRMs averaged 12.4 in Q3, while cap rates climbed to 5.1%, up 150 basis points from their mid-2022 lows. Even in higher-end submarkets, valuations reflect a full-cycle reset, while B- and C-class buildings are seeing cap rates in the mid-6s and even low-7s. For the first time in several years, buyers are achieving positive financial leverage, with borrowing rates occasionally dipping into the high-5% range.
Transaction Volume Shows Renewed Strength in 5+ Unit Market
Perhaps the most encouraging signal of a market recovery comes from the resurgence in activity among 5+ unit properties. After only 38 sales in Q1, volume jumped to 59 in Q2 and rose again to 74 in Q3. This steady acceleration supports the view that the bid-ask spread is narrowing and that investors are recognizing the opportunity presented by distressed pricing and favorable leverage conditions.
Meanwhile, the 2–4 unit segment continues to perform reliably, with 141 transactions in the third quarter and sustained demand from owner-occupant buyers. For many first-time purchasers, acquiring a small multifamily property—with the option to live in one unit—remains far more attainable than purchasing a single-family home at today’s mortgage rates. This demand has helped insulate the segment from the broader commercial downturn.
Inventory Begins to Tighten – A Critical Turning Point
Inventory, the key leading indicator for future pricing, showed the most significant movement this quarter. Active listings fell sharply from an average of 809 in July to 763 in August and down again to 740 in September.
Long Beach, a major driver of local inventory, saw its 5+ unit listings drop from the 90s into the 60s in just a matter of months. This absorption suggests that buyers are taking advantage of distressed opportunities while supply from loan resets continues to enter the market at a manageable pace.
However, the full impact of 5-year loan adjustments is still ahead. As more owners face the reality of refinancing at rates far above their current obligations, additional inventory is likely to hit the market. How that supply interacts with rising buyer demand will shape the trajectory of valuations going into 2026.
Outlook: A New Cycle Emerging
While interest rates are unlikely to fall dramatically, the Federal Reserve appears committed to a slow, steady cutting path. As the yield curve begins to normalize and spreads adjust, investment conditions could continue to improve.
The stock market’s strong performance, riding the momentum of the AI boom, has also prompted some capital rotation into real estate—particularly among buyers looking to make opportunistic, cycle-low acquisitions in an asset class that has clearly endured a multi-year correction.
For current owners, the challenge is simply navigating the remainder of the reset period. For prospective buyers, however, the takeaway is far more encouraging: conditions are aligning for what may ultimately be remembered as one of the most attractive buying windows of the decade.
