With continued solid fundamentals, multifamily is the most preferred asset class for commercial real estate investors in 2025.
For all the short-term negative effects brought on by rising interest rates and record levels of new supply, strong renter demand will drive improving occupancy and accelerating rent growth. This in turn will lead to increased multifamily investment activity. The average multifamily vacancy rate is expected to end 2025 at 4.9% and average annual rent growth at 2.6%.
Developers will add more multifamily units to the U.S. housing market than in any period since the 1970s. Most of this new supply will be in the Sun Belt and Mountain regions, where some markets will grow their inventories by nearly 20% in just three years. However, many of these high-supply markets are now past their peak for deliveries, and occupancy rates have already begun recovering. This recovery will accelerate next year and markets with negative rent growth in 2024 are expected to turn positive in 2025 as completions slow considerably following the marked slowdown in construction starts.