Rents Expected to Grow in 2025 on Strong Multifamily Fundamentals

Rising rents and tightening supply are setting the stage for a big year in multifamily despite mounting operational challenges.

Jordan B.
January 06, 2025

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Good morning. Despite rising operational costs, multifamily rents and investment activity are set for a strong year, fueled by resilient demand and tightening supply, according to Colliers’ 2025 Outlook.

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Market Snapshot

S&P 500

GSPC

5,942.47

Pct Chg:
+1.26%

FTSE NAREIT

FNER

768.13

Pct Chg:
+1.27%

10Y Treasury

TNX

4.614%

Pct Chg:
+0.019

SOFR

30-DAY AVERAGE

4.608

Pct Chg:
0.0%

*Data as of 01/03/2024 market close.

SECTOR OUTLOOK

Rents Expected to Grow in 2025 on Strong Multifamily Fundamentals

Rising rents and tightening supply are setting the stage for a big year in multifamily despite mounting operational challenges.

Leading the way: Multifamily retained its dominance in CRE, representing 35% of total sales volume in 2024. Declining interest rates, expected later in 2025, could unlock sidelined capital and further boost activity. Meanwhile, sky-high home prices and 7.5% mortgage rates continue to make rentals the more viable option for many households.

Stabilizing: Occupancy rates, currently around 93%, are forecast by Savills to bottom out mid-year before rebounding to 94% by year-end. Rent growth, which stagnated at 1.2% in 2024, is projected to accelerate to 3-4%, signaling a return to healthier fundamentals.

Regional trends: The Midwest and Northeast lead in stability, with rent growth projected at 4.5% and 4.2%, respectively, due to limited supply pressures. In contrast, the Sun Belt will see slower rent growth of 2-3%, reflecting higher vacancy rates from overbuilding.

Supply slowdown to drive growth: New multifamily permits dropped 20% in 2024, with completions expected to fall another 15% in 2025. This slowdown will push rents higher, especially in high-demand markets like Atlanta, Phoenix, and Dallas.

Rising costs squeeze NOI: Operational costs continue to climb, with insurance premiums up 15-20% after 2024’s active hurricane season. Labor and materials costs have risen 5% and 3%, respectively, further compressing NOI. Colliers says Sun Belt markets face the greatest strain, with oversupply driving 10-15% occupancy declines.

➥ THE TAKEAWAY

A window of opportunity: Investors have a rare chance to acquire assets below replacement costs in high-growth areas. Cap rates in secondary markets, such as Raleigh and Nashville, are trending upward, averaging 5.5% vs. 4.8% in primary markets. These conditions and stabilizing fundamentals make multifamily a top pick for 2025.

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✍️ Editor’s Picks

Rising debt: Commercial/multifamily mortgage debt rose $47.7B in Q3 2024, reaching $4.75T, with life insurers leading the growth while banks saw modest increases.
CMBS trends: Issuance surged nearly threefold in 2024, while delinquency rates climbed, with major loans facing restructuring challenges.
Rising demand: New York City’s residential real estate market ended 2024 on a high note, with 38% more deal activity than last year.
Deal of the day: Terra secures $291M to advance its 38-acre mixed-use Centro City project, featuring market-rate apartments, retail, and future phases of development.

🏘️ MULTIFAMILY

Full exit? As discussions grow about ending Fannie Mae and Freddie Mac’s conservatorship, experts weigh in on what privatization could mean.
Selling fast: Centra Capital Partners invites accredited investors to join the thriving North Branch Fox Run SFH development, offering a projected 21.8% IRR and capitalizing on strong local demand. (sponsored)
Migration shift: South Carolina surpassed Texas as the top growth state for migration in 2024, driven by cost of living and quality of life considerations, while California saw the largest net loss of residents
Bronx breakthrough: Tishman Speyer's TS Communities secures $222M to build 339 fully affordable housing units on a former church site in the Bronx's Kingsbridge neighborhood.
Dallas recap: Ashcroft Capital, alongside a new joint venture partner, recapitalized The Avery, a 304-unit luxury apartment project in Lewisville, Texas, amid growing optimism for multifamily rent growth in 2025.

🏭 Industrial

Houston acquisition: Partners Capital acquires the 196,000-square-foot Dixie Farm Business Park in Houston, marking its fourth purchase through Opportunity Fund V, with plans for capital improvements.
Twin Cities expansion: Realterm acquires a 6.3-acre industrial outdoor storage facility in Roseville, Minn., bolstering its niche IOS portfolio amidst growing investor interest in the sector.
More Class A: Alliance Industrial begins developing two Class A industrial buildings near Georgia's new Northeast Inland Port, capitalizing on high demand and dwindling supply in the Southeast market.

🏬 RETAIL

Keep climbing: Despite rising single-tenant net lease cap rates, investor activity is returning, with narrowing bid-ask spreads signaling a rebound.
Let’s make a deal: Shaked Acquisitions purchases Cobb Place, a 335,190-square-foot shopping center in Kennesaw, Ga., for $63.5M, highlighting retail's appeal in Georgia's bustling markets.

🏢 OFFICE

Bad for biz: The office sector continues to face pricing discrepancies, with lenders growing impatient with struggling properties and workouts.
Broadway buy: American Exchange acquires 1375 Broadway in Midtown South, Manhattan, with $200M financing, adding to its growing office property portfolio amid strong leasing activity in the area.
Office mandates: Southwest Airlines now requires corporate employees to report in-office up to five days a week.

🏨 HOSPITALITY

Travel trends: International arrivals to the U.S. are set for growth in 2025, driven by European, Canadian, and Indian travelers, while West Coast markets struggle with weak Asian demand and currency challenges.

A MESSAGE FROM S&P GLOBAL

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