CoStar’s Grant Montgomery: 5 Questions

The typically resilient U.S. multifamily market is dealing with challenges such as higher tariffs, resident affordability issues, wider wage gaps, labor shortages and strained supply chains. 

Still, opportunities exist across the multifamily sector as some submarkets experience a rise in supply to meet steady demand and other favorable trends. 

To get a better understanding of what is happening with multifamily across the country, Commercial Observer connected with Grant Montgomery, national director of multifamily analytics with CoStar Group. Over the summer, the information and analytics provider for the commercial real estate industry appointed Montgomery to this position. 

This conversation has been edited for length and clarity.  

What is your role at CoStar?

My role is to be the thought leader on all things multifamily for the organization across the U.S. 

We have national directors for each one of the major property types — office, industrial, retail, hospitality and multifamily. We have market analysts across the country that are specialists in their individual geographies, but each national director is really at the level where we can take a national view and look at major trends that are impacting the entire industry and then be able to work with our local market analysts to both push themes down to them, but then also gather information back up as well, so that we can see from on-the-ground experience in different markets how these trends are playing out in some different geographies.

What are some of the most important trends shaping the way the multifamily sector performs today?

I think the No. 1 topic today, and for the last couple of years, is the supply story. We have experienced a generational wave of supply over the last couple of years not seen since sort of the 1980s, and that has impacted performance for the market as a whole, but particularly in the Sun Belt. 

It’s really sort of a tale of two markets today, where you have the Sun Belt, which is experiencing a period of oversupply, and then you have the Midwest and the Northeast, which are performing quite well. 

The issue is that it’s a supply issue. It’s not a demand issue. In the Sun Belt, we have extremely strong absorption. And, nationally, I think we’ve had six straight quarters of absorption of over 100,000 units. So we see plenty of demand. It’s just we’re going through this period where the market got a little bit out over its skis in terms of deliveries, but that is really starting to change. 

We’re moving through a period of change over the next year where we’re really starting to see a steep drop in the number of deliveries. So deliveries are going to be down 20 percent in 2025 versus 2024, and that has been led by the fact that starts are down 22 percent in 2025 from their peak back in 2022. 

We’re seeing this rapid drawdown of supply, and so that should really start to firm up performance over the next 12 to 18 months in these markets, as we start getting back more to that equilibrium. And that should — from an owner’s perspective — start to provide a little more pricing power.

What is driving that supply trend?

This is the tail end of what I would call the post-pandemic effect, where we had a wave of migration from geographies in the northern parts of the United States to the Sun Belt. We were seeing record-setting domestic migration, and with the migration into the Sun Belt markets we saw a spike in rents. When rents are growing rapidly like that, it draws development. 

And we saw that across the markets. When everyone develops at the same time, sometimes we have a short-term mismatch between supply and demand, and so that’s what we’re going through now.

You can’t build and deliver a product overnight. It takes time. At the same time, domestic migration has cooled slightly, and so we have a temporary mismatch.

Where are we seeing the most outperformance and the most pressure in multifamily markets?

If we want to use year-over-year rent growth as the arbiter of outperformance, we are seeing the strongest performance in coastal California. So the Bay Area has been extremely strong as a national leader, with rent growth well over 5 percent in San Francisco and, in San Jose, much lower, a little over 3 percent. We have also seen strength in the Midwest where Chicago is a leader with 3.9 rent growth. And, then, also New York has been a strong market in the Northeast, with growth just below 3 percent. 

The inner Mountain West is where it has been weak — Phoenix, Denver, Las Vegas, cities like that have had more of that supply. Looking at Austin, Texas, which is sort of the poster child for this phenomenon where rent growth is down negative 4.3 percent. You can look at those markets, and where you see the highest increase in vacancy is going to coincide with the weakest rent growth. There’s a very close correlation there.

What has the impact been like on renters from both a housing crisis and market-rate perspective?

If you are a renter these days, and particularly if you’re planning to rent at what we would call a four- and five-star rental, Class A, new delivery, you’re able to get some really good deals today because they are competing against one another.

But, when we talk about the housing crisis there’s almost two different markets that we’re talking about. How can you have that oversupply of market when we know that we have an undersupply of housing in the United States?

The way that these two can coexist is that they’re really two different price points. So all the data that I’ve been providing you is for market-rate apartments. These apartments are $1,500, $1,700, $2,000 and $3,000 a month. So we have right now a surfeit of that product in some markets, and so for those you’re able to get a deal.

For the other end of the market, where much of the unmet demand in the United States is at, it’s for products that really cannot be developed as new using traditional return metrics for the private market without some sort of public subsidy to really drive and enable folks to develop those and make the necessary profits.

I think that’s how you have these two things going on at the same time, where you have not enough supply at the lower end of the market, but there’s no way you can develop a new apartment and deliver it at $1,000 or $900 a month, but that is where a lot of the need is at. Whereas at the upward end of the market, we’re going through this temporary time period where we have a little too much in some markets.