Multifamily DST 2026 Outlook: Is This the Right 1031 Exchange for You?

Why Multifamily Dominates the DST Market

If you're 1031 exchanging this year, odds are you'll be taking a deep look at apartments. Multifamily now accounts for more than half of all DST offerings on the market, with DST equity raised in 2025 totaling $8.41 billion, up 49% from $5.66 billion in 2024.¹

But one question we're hearing from investors: is this asset class still as compelling as it was five or ten years ago? These are exactly the kind of questions we help investors work through at Anchor1031, getting past the headlines and into the submarket data, supply pipelines, and the numbers that actually tell the story.

Right now, the data is telling two very different stories depending on which multifamily market you're looking at.

What Is a Multifamily DST?

A multifamily DST is a Delaware Statutory Trust that owns one or more apartment properties. It allows accredited investors to acquire fractional ownership of institutional-quality apartment communities through a 1031 exchange or direct cash investment, typically with a $100,000 minimum. Investors receive their pro-rata share of any rental income distributions (which are not guaranteed and may be reduced or suspended) and are subject to changes in property value, which may decrease as well as increase, without any property management responsibilities.

Sun Belt Multifamily DSTs: Why Rent Declines Don't Tell the Whole Story

The markets making the most bearish headlines are the ones that saw the most construction. Austin rents are down roughly 5% year over year. Phoenix is off 3.7%. Denver is declining 3.2%.² Apartment concessions in these markets are running at their highest levels since 2010, with the average concession reaching about 7% of asking rent nationally and running even higher in oversupplied Sun Belt metros.³

Which Markets Are Cutting Rents (and Why)

How did we get here? Many high-growth markets in the Sun Belt saw double-digit rent growth after COVID. This led to developers breaking ground on 547,000 apartment units in 2022 to capitalize on that demand.⁴ Those projects take about two years to build. So the supply flooding these markets today is the echo of a boom that already ended.

Year-Over-Year Rent Growth, All Asset Classes by Metro. Source: Yardi Matrix National Multifamily Report, January 2026

Why the Supply Headwind Is Temporary

Here's the nuance that most headlines miss: the Sun Belt markets struggling with supply today are also the markets with the strongest long-term demand fundamentals. The top 10 metros for net in-migration over the past five years include all major Texas metros, Phoenix, Atlanta, Orlando, Tampa, Charlotte, and Raleigh. Each of these is projected to remain among the nation's top relocation destinations through at least 2030.²⁸

New deliveries in these regions are falling fast. The Southeast is projected to see a 28% drop in deliveries this year. Texas, 37%. The Mountain region, 50%.²⁸ The supply headwind is temporary. The migration tailwind is structural. For DST investors with a 5-10 year hold, the data may suggest that timing matters more than direction, though past market patterns are not guarantees of future performance.

Where Multifamily DSTs Are Quietly Outperforming

Meanwhile, markets that didn't overbuild have been quietly posting strong numbers. Chicago rents are up 3.6% year over year. New York City, 3.3%. Minneapolis, 2.7%. San Francisco led the entire country at roughly 7%.²

Supply-Constrained Markets to Watch

Among the top 15 markets cutting rents, there was actually twice as much demand as in the top 15 markets increasing rents.¹⁵ The difference wasn't demand. It was supply. Markets raising rents had a median supply growth rate of just 0.6% last year. Markets cutting rents? 5.1%.¹⁵

Top 15 Markets Cutting Rents vs Top 15 Markets Increasing Rents. Source: Jay Parsons / Madera Residential

Current vacancy is well below the prior 10-year average in nearly every supply-constrained market: San Francisco, Chicago, St. Louis, Indianapolis. These are the metros where the supply constraint is tightest, and where rent growth is already showing up. If supply trends hold, some of today's rent-cutting markets could find themselves on the other list before long.

Favorable Vacancy Rates May Attract Investors: Year-End 2025 vs. Prior 10-Year Average by metro. Source: Marcus & Millichap 2026 Multifamily Investment Forecast

Class A vs Class B Multifamily DSTs: Which Performs Better in a Down Cycle?

The divergence goes even deeper than geography. Across all geographies, Class A apartments (newer, institutional-quality properties) posted rent growth of +1.4% through October 2025, even in the teeth of the supply wave.⁵ Class B rents dipped 0.6%. Class C rents fell 3.2%, the steepest decline in nearly 14 years.⁵

Class A occupancy actually improved to 94.6% by October 2025, up 20 basis points year over year, even as lower-tier properties saw occupancy slide.⁵

Newer, well-located apartments are weathering this cycle far better than older stock. For DST investors evaluating sponsors, this data may support Class A positioning in the current environment, depending on individual investor circumstances and objectives, particularly in markets where new construction competition is already fading.

Why the Multifamily DST Outlook Is Shifting in Investors' Favor

The construction pipeline that pressured these markets is shrinking fast. Starts fell from 547,000 units in 2022 to about 355,000 by 2024.⁴ Units under construction nationally have dropped 47% from their peak.⁶ California multifamily starts are notably low, creating a major supply constraint in one of the country's largest renter markets.⁷

Walker & Dunlop, one of the largest multifamily lenders in the country, confirmed that starts were "selective in 2025" and they're "talking about more in 2026, but nowhere near the level of 2021."⁷ Construction lending is still tight, with banks pulling back and alternative lenders now accounting for 40% of new loan closings nationally.⁸

Pullback in Multifamily Construction. Source: Marcus & Millichap 2026 Multifamily Investment Forecast

What Falling Construction Starts Mean for DST Investors

Only 270,000 units are slated for delivery nationally in 2026, the lowest since 2014.²⁸ Fewer new units may result in less competition for existing properties, which could contribute to rent stabilization and vacancy compression over time. For DST investors entering a 5-10 year hold, the timing could mean being able to acquire during a potential period of supply correction, though there is no guarantee that a recovery will occur or that it will benefit any specific investment.

The markets that avoided the development boom already have vacancy well below historical averages. And the broader investment market is responding: full-year 2025 CRE investment volume reached approximately $499 billion, up 22% from 2024, with nearly all respondents in the CBRE H2 2025 cap rate survey indicating they believe cap rates have peaked.²³²⁵

The Demand Case for Multifamily DSTs in 2026

The U.S. absorbed roughly 519,000 apartment units in 2025, one of the strongest absorption years on record.⁹ And the underlying demand drivers remain firmly in place.

In all 50 of the largest U.S. metros, renting is now cheaper than owning.¹¹ The homeownership rate sat at 65.7% in Q4 2025, still well below its pandemic-era peak.¹² People are renting longer because they have no other affordable option.

Are Americans Going to Keep Renting?

The counterweights are worth considering. Wages have outpaced inflation for 32 consecutive months, with earnings up 12.4% since late 2022 versus 9% CPI growth.²¹ In dollar terms, the average renter's monthly income grew about $230 last year, while their rent went up roughly $28.¹⁴ Renters are in better financial shape to absorb rent increases when the market tightens.

For multifamily DST investors, this is the demand side of the equation: a structural, long-term renter population that is growing, earning more, and increasingly choosing to rent even when they can afford to buy. However, economic conditions, interest rates, and housing policy changes could alter these trends.

Supply and Demand Remain Aligned: Completions, Net Absorption, and Vacancy Rate 2006-2026. Source: Marcus & Millichap 2026 Multifamily Investment Forecast

A Risk to Think About in Any Multifamily DST: AI and Employment

The economy lost 92,000 jobs in February,¹⁶ and Goldman Sachs Research found that unemployment among 20- to 30-year-olds in tech-exposed occupations rose nearly 3 percentage points since early 2025, a trend they attribute in part to AI-related hiring headwinds.¹⁷ It's worth noting that Deutsche Bank analysts have flagged "AI redundancy washing" as becoming more common (companies attributing layoffs to AI when other factors are really driving them).²⁹

Which Multifamily DST Markets Have the Most AI Exposure?

About 38% of U.S. tech-sector jobs are concentrated in just seven metros: San Francisco, New York, Boston, Washington D.C., Los Angeles, San Jose, and Austin.³⁰ The workers most exposed are also the ones most likely to be renting Class A apartments in those markets. That's a concentrated risk for those areas, but not necessarily a broad national one.

This is why markets with diversified employment bases across healthcare, logistics, professional services, and manufacturing can potentially mitigate against this versus a single sector that's actively restructuring headcount due to AI.³¹ It adds a variable to the underwriting checklist: the employment composition of the submarket, and who's actually in the rent roll, is worth understanding before you commit capital.

What to Ask Before You Invest in Any Multifamily DST

Market selection matters more now than it has in years. When you're evaluating any multifamily DST, here's what we'd be asking:

Remember that supply is one of the biggest leading factors for rent growth. The markets that avoided the supply wave have been the relative bright spots through this cycle. National rents turned positive in January for the first time in five months, apartment values have started recovering, and the broad consensus among institutional investors is that cap rates may be near a cyclical peak.²³²⁴²⁵

How Anchor1031 Evaluates Multifamily DSTs for 1031 Exchange Investors

At Anchor1031, we help investors analyze submarket supply pipelines, sponsor track records, Class A vs Class B positioning, debt structure, and employment concentration risk before any offering reaches our marketplace.

Not every offering makes it through the formal due diligence process that our broker-dealer puts these offerings through. We work with multiple DST sponsors across the country and curate a marketplace of offerings that meet our due diligence standards. Our job is to help you see past the marketing materials and into the numbers that actually drive outcomes.

If you're in a 1031 exchange and evaluating multifamily as a replacement property, or if you want to walk through specific markets or offerings you're considering, we're happy to dig into the numbers with you.

Frequently Asked Questions About Multifamily DSTs

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