Multifamily Construction Outlook
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Multifamily Starts on a Downward Trajectory
Recent forecasts show a clear pattern: multifamily housing starts are expected to decline through the end of 2025, reaching a low point in Q4.
- The latest projections predict annualized starts will drop to approximately 372,000 units in Q4 2025 before rebounding to around 402,000 units by Q4 2026.
- Fannie Mae’s mid-year revision similarly points to 381,000 total starts for the year—down compared to earlier estimates—with a continued decline into early 2026.
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Market Recovery Poised for Year-End
Industry watchers expect stabilization—and perhaps a slight turn toward longer-term norms—by year-end:
- According to NAHB, multifamily construction is expected to decline in the first half of 2025, but then stabilize toward the end of the year as the sector works through a backlog of units under construction .
- This suggests Q4 may mark a transition point from contraction to more normalized activity.
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Supply Pressures Easing, Creating Room for Recovery
The overarching story continues to be one of oversupply—now slowing:
- Freddie Mac forecasts a total $370B–$380B in multifamily originations in 2025, buoyed by a backlog of refinancing needs and stabilization in cap rates and pricing.
- CBRE confirms new deliveries peaked earlier in 2025, with construction starts now sharply down (74% below their 2021 peak and 30% below pre-pandemic averages), setting the stage for improved occupancy and rent growth heading into 2026.
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Absorption & Demand Remain Resilient
Strong rental demand has been a consistent theme:
- Cushman & Wakefield report over 116,000 units absorbed in Q2 2025—one of the strongest quarterly figures on record—while the pool of unsold units under construction fell to its lowest level since 2016.
- Fannie Mae and Moody’s forecasts underscore strong demand driven by favorable demographics (notably, renters aged 20–34), job growth, and high homeownership costs.
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Rent Growth & Occupancy Set to Strengthen
With supply easing and demand solid, conditions favor a rebound:
- MMGREA projects national rent growth to accelerate to 2.8% by Q4 2025, particularly in the Midwest and Northeast, as pipelines in the Sun Belt begin to calm.
- Fannie Mae anticipates rent growth of 2.0%–2.5% for 2025, although gains may moderate again in Q4, reflecting the overall cooling demand curve.
- CBRE projects the average national vacancy rate will drop to around 4.9% by year-end, with rent growth averaging around 2.6%.
Summary & Outlook for Q4 2025
- Construction starts are expected to reach their lowest point of the cycle in Q4 2025, signaling a period of market cooling and adjustment.
- Stabilization is likely late in the quarter, as many previously initiated projects come to completion and new project initiations slow.
- Supply pressures will ease, allowing occupancy and rent growth to regain momentum—especially in markets where oversupply has been most acute.
- Demand remains robust, driven by strong demographic fundamentals, employment gains, and persistent affordability challenges in the single-family market.
- Rent growth and vacancy improvements will be modest but meaningful by year-end, laying the groundwork for stronger performance in 2026.
Looking Ahead: What to Watch
- Construction Activity
Will the decline in multifamily starts bottom out—and when? Watch for early signs of a shift in quarterly construction trends.
- Rent and Vacancy Dynamics
As occupancy rises and new deliveries slow, rents could accelerate even further than current forecasts suggest.
- Regional Divergence
Oversupplied Sun Belt markets may lag in recovery, while more balanced Midwest and Northeast locales might outperform—with rent growth potentially topping forecasts.
- Economic Conditions & Lending
Changes in interest rates, credit availability, and broader economic indicators could influence project viability and investor confidence.
