Gentrification

Gentrification is the process by which a lower-income neighborhood sees rising investment, rents and prices as higher-income residents move in. In gross rent multiplier terms, it usually shows up as rising multiples. Buyers start paying for expected rent growth on top of current rent.

Early in the process, rents often lag prices. Properties trade on the neighborhood's future, and GRMs climb above the historical range. Later, as rents catch up, multiples can settle back even while prices keep rising.

A buyer paying a high GRM in a changing neighborhood is betting that rents will rise enough to justify the price. That bet can pay off, but it depends on forecasts the multiplier itself cannot check. Local rent control or tenant protection rules can also limit how fast in-place rents follow the market.

Further reading: Gentrification on Wikipedia.