Glory Days Ahead for Multifamily Owners in 2025

Like many other real estate assets that underwrote exceptionally well in 2021–2023, multifamily sits near the top. The tailwinds were significant: low interest rates, a mass shift to remote work, cap rates that dropped 10–20%, banks that were bullish on commercial real estate, and no tariffs. There was so much momentum that developers could absorb rapidly increasing construction costs as demand far outpaced supply.

We know this period led to overbuilding—especially in the “cool” markets where saying no to a deal in Austin, Nashville, or Charleston could get an analyst fired.

Source: St Louis Federal Reserve

This chart shows new multifamily construction relative to the U.S. population at the time. A couple of things stand out:

1.  In 2024, we’re still building at levels similar to the late '90s and early-mid 2000s—construction activity remains high.
2.  During the GFC, new construction nearly collapsed. That triggered the next wave of rental growth, which surged in 2023 when interest rates changed the game.

Looking at past data is like trying to drive forward using only the rearview mirror. It’s possible, but not easy. The American Institute of Architects recently released national billing data showing 27 of the last 30 months have seen declines. These days, getting a deal to underwrite takes a cocktail of optimism—on rates, rents, and future value.

The recent tariff talk drains much of that optimism. Developers now fear that any savings from increasingly competitive contractor pricing over the last 18 months will be erased by rising material and labor costs.

The planning, design, and construction of new multifamily projects will continue to slow in 2025. It won’t be a 2008-style collapse, but we'll see a clear decline. And with little on the horizon to boost single-family home sales, existing multifamily won’t face much competition—so the cycle begins again.

But it takes years to get a multifamily project approved and built. While production ramps back up, existing owners are poised to enjoy another set of glory days in the next cycle.