In a recent episode of America’s Commercial Real Estate Show, the show’s host engaged with Carl Whitaker, Director of Research & Analysis, Market Analytics at RealPage, to discuss the multifamily housing market. Their conversation explored current trends, market forecasts, and challenges facing multifamily properties in the U.S., offering valuable insights for investors, developers, and industry professionals. The discussion was national in scope, and thus may apply less to the Miami and other South Florida markets.
Multifamily Market Performance: Current Trends
Whitaker pointed out that despite economic uncertainty, demand for multifamily housing remains strong. During the first half of 2024, the number of multifamily units absorbed matched the levels seen in 2021, a year that many considered an exceptional period for housing demand. However, Whitaker noted that while demand remains robust, the U.S. is experiencing a 40- to 50-year peak in new supply. This increase in supply is putting downward pressure on rent growth and keeping occupancy rates in the lower 94% range, which some industry veterans still consider healthy.
The show host and Whitaker also discussed how the high volume of new developments—many initiated in 2021 and 2022 before interest rates surged—could delay a return to historically normal occupancy rates for another 12 to 24 months. This reflects a broader trend of the market adjusting to post-pandemic realities while absorbing the influx of new multifamily units.
Future Forecasts: 2025 and Beyond
Looking ahead, Whitaker predicts that 2025 will bring incremental improvements to rent growth and occupancy rates, though they may remain below historical averages. By 2026, the multifamily market could return to the performance levels seen in 2018-2019, but only after another year of substantial new supply coming online.
One critical factor influencing future supply is the slowdown in new construction. Whitaker noted that multifamily housing starts have dropped significantly, reaching levels not seen since the Great Financial Crisis. With new projects declining by 20-25% from their peak, Whitaker expects this supply-demand imbalance to ease by 2026, creating opportunities for properties to stabilize and for rents to rise again.
Class A vs. Class B and C Properties
Whitaker shed light on the performance of different property classes. Surprisingly, Class A properties, typically the most sensitive to oversupply, have fared better than expected. This resilience can be attributed to the high cost of single-family homes, which has led many renters to renew leases in Class A buildings rather than transition to homeownership. The trend has been further highlighted by a 50% reduction in the number of tenants moving out to purchase homes, as reported by major real estate investment trusts (REITs).
Meanwhile, Class B and C properties face different challenges. Class B properties are starting to recover after lagging behind in recent years, while Class C units are grappling with economic pressures, including job losses and higher delinquencies. Still, Class A properties pulling demand from the Class B market—and Class B from Class C—is contributing to a rebalancing of affordability across the spectrum.
Submarket Performances: Southeast in Focus
Whitaker also highlighted specific markets that have performed exceptionally well despite high levels of new supply. Charleston, South Carolina, and Savannah, Georgia, have seen strong demand, driven by their appealing local economies and cultural attractiveness. On the other hand, larger markets like Atlanta and Nashville are underperforming due to an influx of inventory and economic headwinds.
Sales Volume and Cap Rates
The conversation then shifted to sales activity and cap rates. Multifamily sales volume has found its floor in 2024, and Whitaker expects a slight rebound in 2025 as investor confidence grows, bolstered by anticipated interest rate cuts. However, valuations remain a key unknown, with most transactions involving either high-end Class A or discounted Class C properties. The middle ground—Class B—has seen limited trading, a trend that may shift as the market stabilizes.
Cap rates in multifamily properties have remained relatively low compared to other asset classes, which Whitaker attributes to ongoing investor interest in the sector. While cap rates are expected to rise slightly with future interest rate cuts, they are unlikely to return to the extreme lows seen in 2020-2021.
Demographic Trends and Long-Term Outlook
Finally, Whitaker emphasized the long-term demographic drivers of multifamily demand, including household formation, job growth, and wage increases. Even though job growth has slowed, wage growth remains strong, contributing to increased affordability for renters. As roommates decouple and form new households, demand for rental units will continue to rise. This demographic shift, combined with the slowing pace of new supply, will likely lead to a housing shortage by the late 2020s.
Conclusion: A Strong Asset Class with Long-Term Potential
In summary, the multifamily market continues to be a resilient and appealing asset class. While the near-term outlook suggests modest improvements, the market is expected to return to more normal conditions by 2026. Investors who can navigate the current supply glut and capitalize on future demand growth will likely see significant opportunities in the coming years.