2024 was a unique year. It wasn’t as bad as 2023, but it was still challenging. Those of us in the multifamily sector had our work cut out for us.
New supply was delivered in record numbers in the “popular” locations, causing downward rent pressure for existing assets. Lower rents led to lower Net Operating Income, causing values to decline.
The 10-year treasury rate was (and still is) stubbornly high, causing high borrowing rates for acquisition and refinance.
This has led to ongoing distress for some owners.
While these factors have kept us on our toes with current assets, they have also provided excellent acquisition opportunities that should provide investor profit for years to come.
Check out the chart below to get a graphic representation of how things have changed over the past two and a half years:
So, what should we expect for 2025?
Here is a quick snapshot of the headwinds and tailwinds that we see affecting the multifamily world in 2025.
Market Dynamics
Supply is tightening.
- Multifamily starts down approximately 40% from peak levels
- New construction significantly slowing
- Projected to decrease vacancy rates and support rent growth
The multifamily sector is experiencing a significant shift in supply and demand. According to the National Multifamily Housing Council (NMHC), new construction has slowed considerably, with multifamily starts down by approximately 40% from peak levels. This reduction in supply is expected to decrease vacancy rates and support healthy rent growth throughout 2025. The Urban Land Institute's (ULI) Emerging Trends in Real Estate 2025 report indicates that the completion of new apartment units is projected to decrease to around 300,000 in 2025, down from over 400,000 in previous years. This limited supply, coupled with sustained demand, is expected to boost rents and property values. That should positively affect our in-place assets.
Rent Growth Projections
Expected growth.
- 3.5% year-over-year rent growth forecast
- Limited new apartment unit completions
- Sustained demand driving potential increases
With the slowdown in new apartment construction, investors are anticipating higher rents. CBRE's 2025 U.S. Real Estate Outlook forecasts a 3.5% year-over-year rent growth as new supply slows down and demand remains strong. These numbers are generalized and vary from market to market. However, we are already seeing an uptick in rents in most of our markets.
Regional Performance
High-Growth Markets.
- Southeast continues to show strong potential
- Texas maintains attractive investment landscape
- Western markets demonstrating consistent population growth
Growth in the multifamily sector is expected to remain uneven in 2025, with certain regions outperforming others. Cushman & Wakefield's 2025 Multifamily Outlook report highlights that areas like the Southeast, Texas, and parts of the West continue to attract population growth and job creation. These regions are likely to see rental housing demand outpace supply, creating favorable conditions for multifamily investments. Currently, all of our assets are in the Southeast and we have plans to enter Texas this year or next. The demographics and growth favor that strategy.
Economic Indicators
Employment Trends
- Steady job market supporting rental demand
- Professional services and technology sectors driving growth
- Continued migration to rental housing
The Federal Reserve's economic projections suggest that employment growth will continue in 2025, albeit at a slower pace than in previous years. This steady job market will support rental demand and stability in multifamily investments. The Bureau of Labor Statistics anticipates job growth in sectors that typically drive rental demand, such as healthcare, technology, and professional services. This supports the theory that, though there will still be some new deliveries, job growth is strong enough that it will absorb those new units, allowing for positive rent growth. Our assets are in strong job growth markets, creating optimism as we move forward.
Demographic Insights
Emerging Renter Profiles
- Millennials and Gen Z driving multifamily demand
- Preference for flexible, technology-enabled living spaces
- Increasing focus on community-oriented developments
Millennials and Gen Z continue to drive demand for multifamily housing. The Joint Center for Housing Studies of Harvard University projects that these demographics will account for a significant portion of new household formations in 2025, supporting continued demand for rental housing. Positive demographic numbers, coupled with a historic gap between the cost of renting versus buying, leads us to believe that demand for our product will be robust in 2025.
Conclusion
New deliveries are slowing down, but demand is not. That is good news for Carbon investors. Projects that have struggled, but survived the past two years, should now show signs of growth and improvement. On the growth front, we are finding more and more properties that fit our purchase criteria, and we are able to acquire them at significant discounts. At Carbon, we believe this strategy will pay off with long-term growth and cash flow. Thanks for being part of the Carbon family and thank you for entrusting your hard-earned capital with us as we work to capitalize on the evolving landscape of the multifamily sector.
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