The fourth quarter of 2025 delivered a mix of signals for multifamily investors across the Greater South Bay Los Angeles market—from LAX down through Long Beach. On the surface, the headline numbers show a clear deterioration in income-based valuations. But underneath that, transaction volume surged and inventory dropped sharply, suggesting the market may be transitioning from a period of price discovery into one of stabilization and early-cycle recovery.
Across all multifamily properties of two units and above, the quarter posted an average 14.1 gross rent multiplier, an average 4.9% cap rate, 263 total transactions, $491 per square foot, and $403,000 per door. Long Beach alone accounted for 111 of those sales, and notably, Long Beach’s GRM averaged 13 across the board, even when including 2–4 unit properties. That is a meaningful shift in pricing for a submarket that has historically carried a premium.
A few submarkets printed extreme numbers—such as a single Harbor City sale at a 10.6 GRM—though isolated datapoints are not particularly instructive. More telling is the broader downward pressure visible in places like Gardena and Inglewood, where valuations came in notably low relative to historical norms.
The Market Split Remains the Central Story
As we’ve seen throughout this cycle, the divergence between 2–4 unit residential multifamily and 5+ unit commercial multifamily remains the defining feature of the market.
In Q4, 2–4 unit properties represented 182 of the roughly 260 sales, and valuations in that segment are still relatively resilient. The category averaged roughly 15x gross with a 4.4% cap rate, which remains “healthy” on paper despite today’s borrowing costs. Long Beach, in particular, continues to defy logic in this segment—still near 15x gross on 2–4 units, even after a multi-year rate shock.
That said, Q4 finally showed signs that the 2–4 unit segment is starting to feel the weight of higher rates. GRMs compressed and cap rates moved upward, reflecting a demand pool that has gradually thinned after extended exposure to elevated financing costs. In plain terms, the smaller-building market may be losing some of the insulation it has enjoyed during the broader commercial downturn. The 5+ unit segment is a very different story.
Commercial Multifamily Reaches a New Price Regime
For 5+ unit properties, Q4 pricing reflected what can only be described as late-cycle pressure. Cap rates moved meaningfully higher across the board, averaging near 6% market-wide, with Long Beach over 6%, and Inglewood pushing roughly 6.7%. GRMs in several areas fell into territory that would have been nearly unthinkable just a few years ago—Inglewood printing under 10x gross on average in some instances, with certain submarkets even lower. This is not simply a matter of sentiment. It is the mechanical outcome of the financing cycle.
Commercial multifamily owners who originated loans between 2020 and 2022—often on 3- and 5-year fixed-rate programs—are now contending with resets. Many are facing the choice between injecting cash to refinance at materially higher rates or selling at valuations that are three to four GRM turns lower than what they paid. That reality has turned the 5+ unit segment into the primary locus of motivated selling, and it is dragging income-based metrics lower as the market works through distress.
Even in coastal submarkets where pricing typically remains stubbornly high—Redondo, Manhattan Beach, Hermosa Beach—the tone is shifting. While those areas still command a premium, Q4 data suggests that “expensive” is becoming less extreme, and the market is gradually repricing even its most protected corners.
Volume and Inventory: The Leading Indicators Worth Watching
If pricing metrics tell us where the market was, transaction volume and inventory help indicate where the market is going.
On volume, Q4 stood out. 263 transactions represent a meaningful jump from Q3 and continued improvement from earlier quarters. To be fair, Q4 is often the most active part of the year as investors work to close deals before year-end. But the broader trend matters: 2025 posted stronger volume than 2024, and it stands in sharp contrast to 2023, when quarterly sales struggled to crack 200 at all.
Inventory is even more compelling.
While 2025’s average inventory levels were elevated—approaching highs not seen since 2011—the monthly data showed a dramatic shift in Q4. Active listings fell sharply from roughly 809 in July to approximately 574 by December. That kind of compression is meaningful. Some seasonality is normal—inventory tends to dip in December—but the magnitude of this decline appears more pronounced than what we’ve typically observed in recent years.
In practical terms, inventory snapping down this aggressively suggests the market is absorbing supply. It may be an early signal that equilibrium is forming and that deals are clearing at levels buyers and sellers can accept.
Why the Market Can Look Worse and Better at the Same Time
One of the more important takeaways from Q4 is that the market can simultaneously show weaker pricing metrics and stronger forward momentum. GRM and cap rates reflect closed sales and tend to lag. Inventory moves sooner, as listings are absorbed while contracts are pending and before closings appear in the data.
When inventory drops and volume rises, it often indicates that sellers are no longer anchored to peak pricing. That theme was echoed repeatedly in Q4: sellers appear more realistic and more willing to work through negotiations, including post-inspection retrades. The emotional cycle is shifting from denial toward resignation—an uncomfortable phase for owners, but historically one that creates compelling entry points for buyers.
There’s also a structural difference from the last major downturn. In 2008–2010, everything crashed at once—including equities—creating broad demand destruction that prolonged recovery. This cycle has been more segmented. The stock market has not experienced a comparable collapse, and in many cases investors have accumulated meaningful gains elsewhere. If and when capital rotates out of equities—particularly if it comes with tax consequences—real estate often becomes a logical destination.
Outlook: A Buyer’s Market with a Potential Turning Point
Q4 2025 reinforced that this remains a buyer’s market, particularly in 5+ unit multifamily where cap rates have reset and motivated sellers are active. But volume and inventory trends suggest the market may be approaching the early stages of a new cycle—one where pricing stops falling not because conditions are suddenly favorable, but because the system has finally digested enough of the shock.
If inventory remains compressed into Q1—when listings typically surge back and volume usually slows—we’ll have stronger evidence that a true turning point is developing. If inventory balloons back and pricing continues to deteriorate, then Q4 may simply reflect seasonal distortion.
For now, the balanced interpretation is this: the market has taken another step down on income metrics, but forward indicators are improving. For buyers, that combination often marks the window where the best long-term acquisitions get made—quietly, before sentiment catches up.
As always, the investors who perform best through transitions are rarely the ones who perfectly time a bottom. They are the ones who participate when the market is still uncomfortable, negotiate with discipline, and stay engaged long enough for the cycle to turn.
