- Nearly 667K apartment units were absorbed in 2024, exceeding expectations driven by strong household confidence, low inflation, solid employment, and higher wages.
- Demand is forecasted to drop by more than 25% in 2025, attributed to smaller-than-expected employment growth and ongoing fiscal and monetary uncertainties.
- Over 470K new apartments are expected to come online in 2025, with major metros like New York, Phoenix, Dallas, and Newark leading the charge.
- National effective rents grew 0.4% in 2024, with a faster pace of 2.5% expected for 2025, though market performance will vary by region.
- Cities like Austin will likely lag behind in rent growth, while markets like Orlando, Richmond, and West Palm Beach are expected to experience higher-than-average gains.
The US multifamily sector surpassed expectations last year, with nearly 667K apartment units absorbed. This growth was largely driven by favorable economic conditions, including lower inflation, high employment, and wage increases.
However, the multifamily outlook for 2025 is more cautious, as slower employment growth and uncertainty around fiscal and monetary policies could lead to cooling demand for new apartments, as reported by GlobeSt.
Tale of Two Years
In 2024, the multifamily industry saw nearly 667K apartment units absorbed, driven by favorable macro conditions.
While this is great, RealPage forecasts that demand for apartments will fall by more than 25% in 2025. The drop is expected due to slower employment growth and continued economic uncertainty, as job creation in 2024 fell 27% compared to 2023.
On the supply side, over 470K new apartments are expected to come online in 2025, with most of the new units concentrated in major cities like New York, Phoenix, Dallas, and Newark. Despite the expected slowdown, however, the ongoing supply pipeline suggests absorption will still be decent.
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The Bigger Picture
The cooling in demand comes at a time when rent growth across the nation has been slower than anticipated. While national rents grew by just 0.4% in 2024, RealPage predicts rents will grow faster this year, with a national average of 2.5%.
However, the impact should vary by market. Some cities, like Austin, may experience slower growth, while markets like Orlando, Richmond, West Palm Beach, and Philadelphia may see significant rent hikes of 3.5% to 4%.
The employment slowdown last year, partly caused by severe weather and worker strikes, also impacted demand. Despite this, GDP grew steadily, and inflation settled at 2.7%. RealPage forecasts the US economy will add about 1.4M jobs in 2025, which should help stabilize demand.
Looking Ahead
While the multifamily sector remains strong, 2025 will bring a more tempered outlook. Developers and investors should prepare for slower absorption rates and rent growth compared to 2024.
However, the ongoing supply of new apartment units in key metros will continue to drive interest, and certain regions may still see substantial rental demand due to local conditions.
