The Future of Multifamily Investment and Finance
Property Management
If you’re a property manager who works with multifamily buildings, you may already have a broad-strokes understanding of the economic factors driving this sector. For example, you might have heard that 2024 saw a historically high volume of multifamily unit deliveries.
But when you know what’s in store for the multifamily sector, you’ll have the opportunity to account for these changes while managing your properties in 2025. On top of that, you’ll find it easier to make wise decisions if you invest in multifamily buildings this year.
Financial Expectations for the Multifamily Sector in 2025
According to Marcus & Millichap’s 2025 U.S. Multifamily Investment Forecast, property managers active in the multifamily sector this year should see:
A Construction Slowdown
Since last year’s multifamily unit delivery was ahead of demand, vacancy rates in the sector rose for the third year in a row. Now, this upward momentum appears to be slowing, which means multifamily construction should see a decline. Compared to 2024’s unit completions, 110,000 fewer units will be completed in 2025.
Growing Renter Demand
While multifamily construction is expected to decelerate in 2025, renter interest in units is increasing. This means multifamily supply and demand could become aligned, marking the first time this has happened in four years.
Minimal Impact From Home Sales
In half of all US states, would-be homeowners need to make more than $110,000 annually to afford a median-priced home. Due to this income barrier and other factors, a limited percentage of renters will likely purchase a home this year. That should continue to drive demand for multifamily buildings and other rental properties.
An Ongoing Rise in Renewals
Between July and September 2024, renewal rates for Class A, B, and C multifamily buildings were above 52 percent (a state of affairs last seen in the third quarter of 2022). Increased moving-related costs will affect the number of household relocations in the near term, which dwindled over the past two years.
Wide Price Gaps Across Asset Classes
As of Q3 2024, there was a $510 price gap between rent for the average Class A and Class B units and a $320 gap between rent for the average Class B and Class C units. These gaps could make mobility between property tiers more difficult, which may contribute to higher rental demand stabilization/renewal this year.
Varying Trends Across Different Markets
While multifamily construction will slow across the United States in 2025, some regions will receive more new multifamily buildings than others. For example, multiple markets in the Sun Belt should see considerable inventory gains this year compared to historical standards.
This Year’s Investment Outlook for Multifamily Properties
Now that you better understand what the year ahead could look like for multifamily development, you might be interested in making some new investments in this sector. Since 2025 will present opportunities and challenges to multifamily investors, you’ll need to think carefully before making significant decisions.
Some investment-related factors you should take into consideration include:
- The effects of pent-up capital. In 2022, the Federal Reserve started raising interest rates—and a large number of institutional investors chose to bide their time in response. This year, major investment funds may have to utilize dry powder capital to avoid the possibility of increased withdrawals. That, in turn, could increase transaction flow (and competition) for multifamily buildings.
- Chances to buy existing buildings. In the past five years, US real estate developers have added almost two million multifamily units to the market. Investors have been closely monitoring this growth and waiting for ideal opportunities to buy these properties.
- A northward shift in capital. Recently, northern markets have delivered fewer multifamily units than markets in the Sun Belt—meaning the former regions have seen lower vacancy rates going into 2025. That, along with noteworthy rent growth in northern markets, has attracted the attention of investors.
- Changes to the political landscape. The arrival of a new administration in the White House has affected the certainty of 2025’s multifamily investment outlook. While the tax climate should still be friendly to investors, proposed policy changes could have an impact on the real estate industry and the economy as a whole.
How Can Your Properties Stay Competitive?
For the most part, the multifamily market should remain healthy this year—but individual properties could still suffer. If you’re facing fierce competition from other multifamily buildings in your area, you could have trouble keeping your vacancy rates under control.
To make your buildings more appealing to prospective tenants, you can:
- Prioritize sustainability. Millennials and members of Gen Z care deeply about sustainability. By taking eco-friendly steps like installing solar panels and low-flow water fixtures, you can give people in these generations an extra reason to consider your buildings.
- Adopt smart home technologies. Smart lighting and smart thermostats can reduce your buildings’ environmental impact while delivering conveniences for your tenants. Meanwhile, smart locks and smart doorbells will make your units safer than ever before.
- Charge fair market rent. By aiming to match the rental prices of other multifamily buildings in your area, you’ll find it easier to compete with these properties.
- Focus on resident relationships. Book clubs, movie nights, arts and crafts classes, and other tenant events can help your residents form new connections.
- Simplify tenant communication. When your residents can make payments and submit work orders online, they will find it much easier to complete these tasks.
How Property Management Systems Improve Multifamily Buildings
By implementing a resident portal, you can give your tenants constant updates on community events and increase awareness of and participation in these activities. Tenants can also use resident portals to submit work orders and pay rent.
The easiest way to create a resident portal is to choose a property management program with this feature. Additionally, your property management system should help you optimize your tenant application process, access reports from an intuitive dashboard, and customize unit work orders. If you’d like to benefit from these capabilities and others, take the first step by scheduling a demo of ExactEstate.
