March 24, 2025

2025 National Multifamily Outlook Report: An Anticipated Slowdown in New Construction Strengthens Market Sentiment

As the calendar turned to 2025, most forecasters had a sense that disruption would be occurring across several aspects of the economy. The country’s immigration climate, the size and scope of the public sector, and international trade policies were all areas that were likely to see changes in 2025, and the first few months of the year have been volatile in these areas and many others.

In recent months, many of the forces that influence the operational performance and investor demand for rental housing have been impacted by the volatility in the larger economy. Labor markets have posted slower growth, inflation has picked up and then slowed, and interest rates have fluctuated. Forecasts for future interest rate cuts have swung wildly since the most recent rate cut at the end of last year.

It is against this evolving backdrop that we assess the current state of the national multifamily market and determine the outlook for the remainder of the year.

Economy

Employers are forecast to add approximately 1.7 million net new jobs in 2025, after about 2 million positions were added last year. Gains this year will likely be concentrated in the private sector, with the professional and business services and financial activities sectors likely to gain momentum. The public sector will likely drag on overall job growth, after boosting employment totals in recent years.

Supply & Demand

Deliveries have been elevated in each of the past two years, and developers have added approximately 1 million new units to inventory since the beginning of 2023. The pace of construction will slow this year, and projects totaling closer to 400,000 units are scheduled to come online. Absorption surged in 2024, reaching roughly 480,000 units. This year, net absorption is forecast to total approximately 300,000 units.

Vacancy & Rent

The robust absorption levels in 2024 caused vacancies to level off, outperforming expectations. This year, vacancies are forecast to rise 40 basis points to 6.7 percent. Rents should push a bit higher at the national level, particularly in markets where supply-side pressures are easing. A return to historical levels of rent growth is likely to occur beginning in 2026.

Investment Sales

Investment activity gained momentum in 2024, but sales volumes are still down about 50 percent from peak levels. Investors are favoring the new Class A properties that have been delivered in recent years, and these transactions should lead the way again in 2025.

Debt & Equity

Capital markets are expected to be more active in 2025 than they were last year. The agencies should continue to provide debt for acquisitions. Equity has been raised for acquisitions, and capital is expected to be deployed for both new construction and troubled assets as they become available. Securing equity for new construction is expected to be more of a challenge.

Outlook

The multifamily market faces a combination of optimism and uncertainty at the beginning of 2025. Current conditions are stronger than they were originally forecast to be, and the robust renter demand for units that was posted in 2024 has stabilized the sector and buoyed sentiment.

To this point in the year, there has been greater volatility in the economy, complicating the outlook. Treasury yields have been volatile for the past six months, pushing higher at the end of last year and then creeping lower in recent months. Inflation appears to have stabilized, but the prospect of tariffs on imports from key trading partners could have a one-time impact on pricing levels.