REAL ESTATE NEWS

Multifamily properties have had an uncharacteristic start to 2025. Typically considered a darling of commercial real estate for its steady rent growth even in a challenging market, in the first half of the year that rent growth plateaued. According to research from Yardi, multifamily rents increased a mere 0.7% in the first half of the year, primarily as a result of record new construction deliveries.

According to David Ferber, director and first VP at Matthews, the market seems to have quickly adjusted rents have already entered a recovery. Ferber, who has been closely tracking multifamily rent trends, says that the second half of the year and into 2026 will see stronger rent growth.

The Start of a “Measured” Recovery
Last year, multifamily deliveries set a new record of 608,000 units. The new supply was much needed. The nation remains in the middle of a severe housing shortage. However, the slew of new deliveries lowered expectations for rent growth in 2025 while the market absorbed the influx.

Ferber notes the recovery is starting earlier than expected. Already, the market is showing signs of early rent growth, according to Ferber, who expects a strong performance in the fourth quarter.

Ferber, however, is quick to qualify this new growth cycle. This growth cycle won’t look like the post-pandemic rent growth era, where many markets saw high double-digit growth. “The market is in a measured recovery. There is likely not going to be explosive rent growth. This year, rents have started recovering, and slowly, the rent growth has been picking up again.”

He points out some of the rent growth isn’t showing up on paper. Many owners are trying to maintain current rent rates without any concessions—an increase in the effective rent rate.

New Construction Pipeline Stalls
In a typical market cycle, rent growth will signal more new construction activity—but this isn’t a typical cycle. Multiple barriers stand in the way of building new product, Ferber notes.

“Because of tariffs leading to higher construction costs, you're going to see less projects coming to market,” says Ferber. “Next year there may not be as many units coming live, but the demand from renters will still be there. As a result you're going to continue to see rents grow.”

Again, Ferber highlights that this is a measured recovery. There will be a supply-demand imbalance, but he sees rent growth likely peaking at 2% to 3% for the next few years. And other outlying factors could help push rents higher. Interest rates are on their way down, for example, and the investment sales markets are recovering as well. On the flip side, a looming economic downturn could also push rents in the opposite direction.

While there remains some uncertainty, the quick recovery this year shows the multifamily market remains strong.

For more insights and thought leadership from Matthews, click here.

Source: GlobeSt/ALM