Budgeting for Resilience in 2025: The Multifamily Market Trends You Need to Know

As the multifamily housing market looks ahead to 2025, multifamily faces a landscape shaped by fluctuating supply and demand dynamics, rent growth challenges, and evolving market competition. In our latest on-demand webinar, we had Jordan Brooks, Senior Market Analyst at ALN Apartment Data, give us a look into national forecasts and regional breakdowns. Joined by Jordan Brooks is the Chief Experience Officer of Inhabit, Elizabeth Francisco, who shares her own insights and ideas for operators to tackle the 2025 year head-on.

We’re recapping the data, with a clear perspective on these trends and how they will influence planning, strategy, and operations in the upcoming year. From high-supply markets to regions facing nuanced challenges, understanding these forecasts is key to navigating the 2025 year in multifamily.  

National Forecasts for Multifamily

With 2025 looking to be a similar year as this one, we wanted to share some of the major national forecasts we’re seeing, specifically around supply, demand, vacancy and rent growth:  

• As of August 2024, 900k apartment units were under construction, a decrease from 1.1 million the previous year, with most of those set to be completed in the 2025 fiscal year.

• The cost difference between owning and renting reached $1,114, a 26.7% year-over-year difference, likely due to the currently, record-high interest rates.

• Building permits are down by 60% in the first half of 2024 which will help stabilize the oversupply and create stronger rent growth going into 2026 and 2027.

• Despite an 88% average occupancy in Q3 of 2024, the beginning of 2025 is forecasted to take a slight dip before rising again in the 2025 peak leasing season. This equates to a slight increase in vacancy rates in 2025, as well.*

• The average effective rent for 2025 is looking to sit at 2.5%.*

While these different data points have their own implications, 2025 is looking to be quite like the previous year with oversupply, higher competition and slower rent growth on a national level.

Regional Forecasts

The national market tells one story but also masks a lot of what is going on at a regional level. While it’s good to see an overview of the national market, we wanted to break down the data to a more regional context so metropolitan areas can get a better sense of how their markets are to be affected by the 2025 forecast as well as budget and strategy considerations these markets should have in relation to the data.

Group 1: Regions Seeing the Light at the End of the Tunnel

This group of metropolitan areas, including many Sunbelt and Mountain West areas, consist of markets that have had highly active construction pipelines in recent years and have since been challenged by the elevation in new supply. Fortunately, these cities have seen apartment demand rebound noticeably this last year and seem to have passed the peak of new supply.  

Q1 2025 represents a crucial turning point for high-supply markets such as Austin, Dallas, and Denver, as declining vacancy rates indicate a move toward higher occupancy levels. Despite previous challenges from oversupply, rent growth is projected to become positive in the latter half of 2025 as these markets continue to absorb the new units completed in the first half of the year.  

One thing worth noting is the dramatic increase of new supply in the Austin and DFW regions, with 16% of the last 36 months existing stock accounted for in Austin and 11% in DFW. With all of that considered, these two markets will likely see a slower bounce back, but rest assured, supply will still slow down in 2025 as well as the following two years.

While there is a light at the end of the tunnel for these markets, the influx of new units from the end of 2024 and early 2025 will continue to challenge rent growth. As you strategize and budget for 2025, consider these in your approach:  

• Prioritize detailed lease expiration management to align with upcoming new deliveries and lease-ups struggling with occupancy stabilization.

• Be aware of potential aggressive concessions and offers from competing properties that could impact effective rents for new and renewal leases.

• Map out competitor risks and review monthly lease expirations through the end of 2025 for better strategic alignment.

• Exercise caution with short-term (STR) and medium-term (MTR) leases, considering their impact on NOI amid high turnover costs.

• Ensure short-term lease offerings are profitable; if higher rents do not offset turnover costs, reconsider offering these types of leases.

• Analyze the last 12 months of prospect data on lease terms to determine if there is sufficient demand to prioritize longer-term leases over shorter ones.

Group 2: Regions with Caveats and Context

When you take a look at leaders in rent growth and occupancy, this group of regional markets will show up. These regions haven’t been delivering as much new supply, which has kept the average occupancy and rent growth relatively strong. These markets aren’t seeing huge population growth compared to other regions.

Since these markets do not benefit from strong demand, rent growth relies heavily on how much value residents place on their unit, as well as their relationship with the site team and the overall quality of the community. For your 2025 strategy, consider these in your approach:

• Always work to justify rent increases; never assume they are a given.

• Focus on optimizing rents at the unit level instead of applying general dollar or percentage increases.

• Collaborate with teams to identify unique attributes of each unit (e.g., better views, proximity to amenities, specific upgrades) that can attract the right renters and be monetized effectively.

• Explore opportunities for ancillary revenue.

Group 3: The Ride Isn’t Over

These markets are expecting new supply to be higher than recent new supply. Some have had relatively low new supply in recent years and are going to start ramping up whereas others have been seeing new supply but aren’t quite at their peak yet. Whatever the history, the key with these markets is that they need to plan for new supply.

The good news is, if you’re in one of these markets, that you have history to learn from the courtesy of the Group 1 markets. Here’s what you should consider in your 2025 strategy planning:

• Anticipate impacts on occupancy and rental rates, learning from high-supply markets like the Sun Belt. Avoid complacency and prepare strategically.

• Explore ancillary income streams, rentable items, and reward programs to boost revenue.

• Maximize parking value through strategies like restriping or prioritizing premium spaces.

• Combat employee burnout or fatigue with bonus plans tied to performance and budget goals to keep teams engaged and productive -- a financial win-win scenario.

• Implement in-house collections to reduce bad debt, incentivizing teams with a share of recovered funds.

• Use detailed reports to tailor strategies to specific market conditions.  

The 2025 multifamily market presents a mix of familiar challenges and emerging opportunities. Nationally, stakeholders will need to adapt to a year of ongoing supply pressures and strategic competition. Regionally, tailored approaches are crucial, as market conditions vary widely. By staying informed, proactive, and flexible, your teams can leverage data-driven insights and strategic planning to not only withstand market pressures but also position yourselves for growth and success in the evolving landscape.

Want more insights and breakdowns? Watch the full on-demand webinar here.  

*Data sourced from ALN Apartment Data

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