As we move through 2025, the U.S. multifamily real estate market is showing strong signs of stabilization after the turbulence of recent years. According to CBRE’s latest report, the sector is settling into a more balanced and sustainable rhythm, following the pandemic-driven fluctuations in supply and demand. This shift toward equilibrium is becoming evident in everything from underwriting strategies to investor sentiment and development activity.

Underwriting Standards Signal Confidence

In the first quarter of 2025, underwriting assumptions for core multifamily properties indicate growing confidence. Both entry and exit cap rates saw modest declines—by six and three basis points, respectively—while return expectations (unlevered IRRs) aligned closely with those from mid-2023. These adjustments suggest investors are once again seeing long-term value in the sector, even as the Federal Reserve adopts a more cautious approach to cutting interest rates this year.

For value-add investments, underwriting softened slightly, though this appears to reflect a broader market stabilization rather than an increased appetite for risk.

Investor Sentiment on the Rise

Investor confidence is clearly rebounding. The percentage of buyers with a positive outlook on core assets rose significantly—from 44% at the end of 2024 to 65% in early 2025. Sellers, too, have shifted toward a more balanced outlook, moving away from the neutral or negative positions of the past few years.

This renewed optimism is not limited to traditional hot spots. While the Sun Belt remains a hub of activity, even markets like San Francisco—long considered challenging—are seeing a resurgence in interest, especially for core properties.

Solid Fundamentals Underpin the Recovery

The improving sentiment is supported by strong market fundamentals. Apartment demand remains high, with the first quarter of 2025 seeing record absorption and nearly 460,000 units expected to be taken up over the full year. At the same time, the new supply pipeline is slowing. Fewer construction starts and a projected drop in completions are helping to alleviate the overbuilding that previously led to high vacancy rates.

As a result, vacancies are stabilizing or decreasing across many markets, and rent growth—while still below historical norms—is picking up again. CBRE projects a national rent increase of about 2.6% for 2025, with vacancy rates likely to remain under 5%.

Regional Leaders in Recovery

Regionally, the Sun Belt and a few major metro areas are at the forefront of the market’s recovery. These areas are benefitting from strong population growth and solid economic fundamentals. Markets that were previously flooded with new supply are beginning to absorb that inventory, which is helping to rebalance occupancy and rent levels. This trend, combined with reduced construction activity and steady demand, is expected to keep the multifamily market on stable footing through the rest of the year.

Source:  GlobeSt.