A Better Balance for Multifamily in 2025?
Multifamily investment activity may finally increase this year. But mitigating factors will keep the floodgates from suddenly opening wide.
Another year gone, a new one begun. Last year at this time, we were wondering whether we’d be dealing with a recession or relishing a soft landing. While that’s still a bit up in the air, the last few months of 2024 offered some encouragement for real estate owners and investors, as three interest rate cuts totaling an entire percentage point, accompanied by positive Federal Reserve comments regarding economic growth, led to stirrings among lenders that suggest activity may finally be able to increase this year.
How much remains to be seen. The floodgates are not likely to suddenly open wide. Whether selling or refinancing, property owners must still contend with a higher cost of capital. MHN guest columnist Ben Jackson of the Leste Group recently predicted the real opportunity will start to occur in 2026, although he pointed to some big investors already getting in line. (His new mantra is “stay in the mix till ’26.”)
Contributing to continued volatility in Treasury rates is the imminent change in administration, as another MHN columnist, Mark Reichter of Gantry, recently noted. Although a real estate developer, the incoming President has referenced a number of intentions that could impact the market. But Reichter sees promise in the new capital sources already stepping in and the slowing development and resultant tightening of vacancies forecast over the next couple of years.
Indeed, a COVID-era rush of new construction began to ease last year, according to an MHN analysis of Yardi Matrix data. Construction starts rose in 2021, hit a peak in 2022 at 663,795 units—the vast majority of them higher-end Lifestyle quality, not the much needed affordable housing—and remained close to 600,000 the following year. But Yardi Matrix forecasts a gradual slowing through the end of 2025, and then a much greater drop in the following years.
Until that significant decrease occurs, rent growth will remain limited, particularly in the larger Sun Belt markets that have attracted such a population influx, according to the data provider’s year-end “Multifamily Rent Forecast Update.” While there are exceptions, such as some more affordable and growing secondary markets in the Midwest and Northeast, broader normalized rent growth of 3 to 4 percent is not likely to occur before 2027, the report predicted.
The good news, though, is that the multifamily market is slowly shifting toward a better balance that is more sustainable. It doesn’t solve everything, but at least 2025 looks to be a year where things are headed in the right direction.
