The U.S. multifamily market in early 2025 is defined by a return to stability and cautious optimism, as the sector transitions from the turbulence of pandemic-era supply surges toward a more balanced and sustainable footing, according to a new report by CBRE. This search for equilibrium is evident across key market fundamentals: underwriting assumptions, investor sentiment, and supply-demand dynamics are all converging toward a new normal after years of volatility.
Underwriting standards in the first quarter of 2025 reflect this recalibration. For core multifamily assets, assumptions have improved, with both going-in and exit cap rates inching downward—falling by six and three basis points, respectively—while core unlevered IRR targets also dipped, aligning closely with mid-2023 levels. This signals investors are regaining confidence in the sector’s long-term value, even as the Federal Reserve signals a slower pace for interest rate cuts in 2025.
Meanwhile, value-add assets saw a slight underwriting weakening, but the changes were modest and reflected a broader stabilization environment rather than renewed risk-taking.
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Investor sentiment has notably improved. Positive outlooks among buyers of core assets jumped from 44% at the end of 2024 to 65% in the first quarter of 2025, while sellers shifted from a majority neutral stance to a more balanced, less negative perspective. This growing optimism is not confined to one region; the Sun Belt continues to see robust activity across asset types, and even traditionally challenged markets like San Francisco are experiencing renewed interest in core properties.
The improved mood among buyers and sellers suggests the market is moving past the uncertainty that characterized the immediate post-pandemic period.
Fundamentals support this sentiment shift. Demand for apartments has proven resilient, with record absorption in the first quarter and projections for nearly 460,000 units to be absorbed over the year. At the same time, the supply pipeline is tapering. Construction starts are down significantly from recent peaks, and completions are expected to decline further, easing the pressure that led to elevated vacancy rates in previous years. As a result, vacancy rates are stabilizing or declining in many markets, while rent growth, though still below long-term averages, is regaining momentum. CBRE forecasts that rents will increase by an average of 2.6% in 2025, with vacancies expected to settle below 5% nationally.
Regionally, the Sun Belt and select major metros are leading the recovery, benefiting from strong demographic trends and economic growth. Markets that saw the largest supply influxes during the pandemic are now absorbing that inventory, which is helping to normalize both rents and occupancy rates. The moderation in new construction and steady demand are expected to further support market balance through the remainder of 2025.
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