Multifamily Market Poised for Growth in 2025

The multifamily housing market is undergoing a dynamic shift, creating compelling opportunities for discerning investors in 2025 and beyond. Despite challenges like regional oversupply and economic uncertainty, signs of stabilization and recovery are emerging. Vacancy rates are beginning to normalize and demand is increasing, particularly in areas with strong job growth and population influx. The slowing pace of new construction is also a positive factor, as it should help to reduce the imbalance between supply and demand. However, regional variations, economic conditions, and regulatory changes are likely to continue to shape the future of the multifamily housing market. Investors and industry professionals must closely monitor these factors to effectively capitalize on opportunities and mitigate risks.

Demand Dynamics: A Positive Trajectory 

Despite localized oversupply in certain Sun Belt markets, overall demand for multifamily housing remains robust. Occupancy rates continue to hover around a healthy 95%, and projections from North Spyre indicate a need for 4.3 million new units by 2035. High interest rates are keeping renters in place, further tightening supply and creating a favorable environment for existing property owners. 

Absorption rates — measuring how quickly new units are leased — will be a key indicator of how swiftly the market corrects. A strong absorption rate can help stabilize supply and demand, reducing the negative impact of overbuilding.. In 2024, demand caught up with supply, ending a two-year period where supply led demand. As illustrated in the chart below, absorption has now surpassed new deliveries, marking a positive turning point not seen since early 2022. This surge in absorption is a key indicator of strengthening demand and a return to market equilibrium.

Source: RealPage Market Analytics, January 2025

Looking at supply, the substantial building activity of the past four years, particularly since 2022, has contributed to the current surplus. However, the data reveals a compelling narrative: while 2024 presented challenges in absorbing the influx of new supply, by year-end, absorption reached its lowest point and decisively began to catch up. This positive shift is significant, as demonstrated by the market’s progress toward balance. 

This market correction, driven by increased absorption and a sharp decline in new construction starts, presents unique opportunities for investors. As the wave of new supply is absorbed and construction starts plummet to historic lows (30,000 units in Q4 2024, the lowest since 2011), demand is poised to outpace supply in the coming years. While 2025 will be a year of continued absorption and stabilization, the stage is being set for potential demand deficiency beyond 2026, further enhancing the attractiveness of existing multifamily assets. 

Regional Variations and Investment Strategy

While national trends are encouraging, an understanding of regional dynamics is crucial. Cities with strong employment markets, such as Phoenix and Austin, are experiencing increased rental demand, while some Northeast and Midwest cities face slower growth. Our investment strategy focuses on identifying and capitalizing on opportunities in these high-growth markets, leveraging our deep understanding of local market dynamics and demographic trends. We recognize the importance of mitigating potential risks, including localized oversupply and economic uncertainties. Our rigorous market analysis identifies submarkets with strong fundamentals and limited competition, minimizing potential downside risk. Furthermore, our expertise in development and property management allows us to optimize operational efficiency and enhance resident experience, driving strong returns for our investors.

Investor Sentiment

Multifamily housing is positioned to remain a leading investment sector in 2025, according to Globest. The asset class has historically outperformed others, and investors continue to favor it over alternative investments. Key indicators like vacancy rates and rent growth suggest a potential market recovery, with some experts predicting a period of sustained growth. However, investor sentiment can be influenced by factors such as economic uncertainty, interest rate fluctuations, and market volatility. Understanding the evolving investment strategies of various investor types, including institutional and individual investors, is crucial for gauging future market trends.

Interest Rates, Financing, and Financing

The cost of capital, significantly influenced by interest rates, plays a pivotal role in shaping development costs and investment returns. The availability and terms of financing options, including debt and equity, can further impact investment decisions and the overall health of the market. Additionally, technological advancements, such as the implementation of smart building technologies and the utilization of data analytics, can enhance the efficiency of operations, improve the sustainability of multifamily properties, and provide valuable insights into market trends, resident behavior, and asset performance.

2025 Outlook

According to CBRE, the multifamily market is expected to reach greater balance in 2025. Easing construction activity is expected to reduce supply growth, leading to lower vacancy rates and potentially stronger rent growth. While a significant portion of new construction will continue in Sun Belt states, many major markets have already passed their construction peaks. With construction starts projected to decline significantly compared to pre-pandemic levels, the market is poised for a period of stabilization and potentially increased investor confidence. Investors and developers must consider factors beyond traditional metrics, such as local regulations, climate risks, and evolving social trends like remote work and co-living. By adapting to changing market dynamics and leveraging data-driven insights, investors can position themselves for success in the evolving multifamily housing landscape.

Source: RealPage Market Analytics, January 2025

As seen in the graph above from RealPage Market Analytics, while the multifamily market peaked in new supply in 2024 and shows signs of stabilizing, supply remains a significant factor in 2025. The market is catching up for two primary reasons: first, the majority of what was under construction is now online, and second, construction starts have dramatically decreased. The building boom since 2021 resulted in a surge of product hitting the market in late 2022 and peaking in 2023. However, this wave of supply is now largely absorbed, leading to the catch-up. Simultaneously, construction starts have fallen sharply, with only 30,000 units started across the U.S. in the fourth quarter of 2024—the lowest since 2011. Completions are now outpacing starts, impacting the 2025 forecast. Looking ahead, demand will likely outpace supply for the next few years, and while 2025 will continue to show absorption and stabilization, we may face another demand deficiency beyond 2026.

In summary, the multifamily market is at an inflection point, presenting unique opportunities for long-term investors. While select regions face short-term challenges, the overall trajectory points toward increased demand and market stabilization in 2025 and beyond.  Our proven track record in identifying and developing successful multifamily projects, combined with our in-depth market knowledge, positions us to capitalize on these emerging opportunities.  We are actively seeking investors to partner with us on our latest projects, which are strategically located in high-growth areas with strong fundamentals. Contact us today to discuss how you can participate in the potential upside of the multifamily market.

Sources: Costar, Globest, North Spyre, CBRE, CRE Daily Globe St.

Date Published 2/28/2025

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