MARKET SNAPSHOT
The national inventory of market-rate apartments expanded significantly in 2024, growing by 3.4%, or 675,400 units. This marked the peak of the current delivery cycle and the largest annual expansion in nearly four decades. However, the construction pipeline has notably contracted, declining from a high of 1.17 million units under construction in Q1 2023 to approximately 675,000 units as of early January 2025.
Of these units under construction, approximately 430,500 are projected to deliver in 2025, offering much-needed relief for owners and operators, particularly in the Class A and luxury segments. The reduction in new supply is expected to benefit overbuilt Sun Belt markets by allowing them to absorb the surplus inventory accumulated over the past two years. This absorption should help stabilize local occupancy rates and curb the deceleration in rent growth.
For example, Austin’s 2025 supply forecast anticipates a significant 50% decline in deliveries, dropping from 27,000 units in 2024 to 12,700 units. This pullback in supply, paired with steady demand, is expected to stabilize Austin’s rising vacancy rate and yield modest rent growth of less than 1.0% by year-end 2025.
In 2024, the U.S. multifamily market achieved a significant milestone, absorbing over 555,000 units—the second-highest net absorption this century, trailing only 2021’s record of 704,000 units. This robust demand was driven by stable economic growth and a slowdown in renter households transitioning to homeownership. However, this impressive absorption was overshadowed by a historic influx of new supply, a result of the low-interest-rate environment from 2020 through early 2022.
Over the past 12 quarters, supply additions have consistently outpaced demand, though the disparity has narrowed. By the end of 2024, the supply-demand gap stood at 120,000 units favoring new supply, a significant improvement from the 270,000-unit gap recorded in 2023. This narrowing gap helped maintain relative stability in occupancy rates nationwide, with the average occupancy rate of stabilized properties declining only 10 basis points to 93.8%.
Looking ahead, with projected deliveries expected to decrease by more than a third in 2025, the substantial imbalances experienced between 2022 and 2024 appear to be diminishing. Anticipated strong demand coupled with declining unit deliveries suggest that overall market conditions are poised for modest improvement in 2025. While normal seasonality may exert downward pressure on occupancy in the first quarter, starting in the spring leasing season, the combination of robust demand and reduced new supply is projected to elevate the average occupancy rate by 10 basis points year-over-year by the fourth quarter of 2025.
Since Q1 2022, national rent growth has decelerated significantly, dropping from 9.9% to just 0.9% in Q4 2024. The Class A segment has faced the greatest challenges, posting modest rent growth of 0.2%—a slight improvement from the negative year-over-year growth seen over the prior year, driven by rising vacancies. In contrast, mid-tier properties have experienced comparatively stronger performance, with rent growth at 1.7%, outperforming both the luxury segment and the national average.
At the close of 2024, metro areas leading in rent growth included San Jose (3.5%), Detroit (3.4%), Cleveland (3.3%), Kansas City (3.2%), and Pittsburgh (3.0%). Conversely, prior growth leaders such as Austin and Phoenix have seen substantial rent declines over the past year, recording year-over-year rent growth of -5.1% and -2.1%, respectively—a sharp contrast to the mid-teens rent growth they achieved at the end of 2021. The Midwest and Northeast regions continue to lead the nation in rent growth, a trend projected to persist into 2025. These regions avoided the severe reversals experienced in Sun Belt markets, largely due to their more modest construction pipelines during the pandemic. This restraint in new supply has kept markets in these regions relatively balanced, preventing the oversupply conditions that have weighed down rent growth in many Sun Belt locations.
National rent growth is projected to accelerate to 2.8% by the end of 2025, signaling a broad improvement in market conditions. Nearly all metropolitan areas are expected to return to positive rent growth, reflecting increased demand and a more balanced supply pipeline. However, Austin and San Antonio may remain outliers, potentially experiencing another year of modest rent declines as they work through lingering oversupply challenges. These trends highlight a changing national landscape, where previously overheated markets recalibrate, and traditionally stable regions emerge as rent growth leaders heading into 2025.
The U.S. multifamily market is poised for a favorable shift in 2025, driven by a convergence of economic factors and housing trends. The national economy is projected to grow by 2.2% in 2025, accompanied by and a 4.4% unemployment rate. This stable economic environment is expected to bolster renter demand, particularly as the single-family housing market faces challenges. Home prices are anticipated to rise modestly by 2% to a median of $410,700, while mortgage rates are likely to remain elevated, averaging around 6.3%. These conditions may deter potential homebuyers, thereby sustaining robust occupancy levels in multifamily properties.
Simultaneously, the multifamily sector is set to benefit from a significant reduction in new supply. Projected deliveries are expected to decrease by more than half compared to previous years, alleviating the supply-demand imbalance that has characterized the market recently. This contraction in new inventory, coupled with steady demand, is likely to support rent growth and enhance occupancy rates across various market segments. Consequently, investors and operators in the multifamily sector can anticipate improved market fundamentals, positioning 2025 as a year of recovery and growth.
