Dive into a data-driven analysis of the U.S. multifamily market as it responds to evolving economic factors and policy changes. The second quarter of 2025 marks record-setting demand, resilient absorption and vacancy compression despite robust supply growth. Explore the market-leading performance in high-growth Sun Belt metros, the latest on rent and vacancy trends, origination momentum, capital flows and total returns across major U.S. markets. This report provides actionable insights for investors navigating today’s multifamily landscape.
Executive Summary
Demand Drivers
Renting remains significantly more cost-effective than homeownership in the U.S., with the cost gap between the two continuing to widen well beyond historical norms. This persistent disparity underscores the growing financial burden of buying a home. At the same time, many homeowners are reluctant to sell, as current mortgage rates are substantially higher than what most borrowers are locked into, reducing the incentive to move. Although there has been a slight increase in mortgage applications, overall activity remains well below typical levels.
Leasing Market
Apartment demand surged to record levels, pushing annual absorption to its highest on record and significantly outpacing long-term averages. Strong leasing activity relative to existing units continued in high-growth Sun Belt markets, even as overall supply began to ease, with fewer new units delivered and further slowdowns expected. As demand outpaced supply, the national vacancy rate fell to its lowest level in nearly three years, tightening conditions across much of the country. Despite this strong backdrop, rent growth remained muted, holding steady below 1% for the second straight quarter, an unusual disconnect given historically tight fundamentals. Regionally, the Mid-Atlantic, Northeast and Midwest led in both occupancy and rent growth. In contrast, many Sun Belt cities posted flat or declining rents, though markets like Miami and Tampa continued to see gains.
Debt Capital Markets
Multifamily debt origination gained strong momentum in the first half of 2025, outpacing recent years as improved market confidence, tighter loan spreads and a slowdown in new construction fueled increased borrowing activity. While GSEs continue to lead in market share, their dominance has slightly declined, with alternative lenders like debt funds, insurance companies and CMBS/CRE CLOs stepping in to fill the gap left by a sharp pullback in bank participation. Looking ahead, a substantial volume of multifamily loans is set to mature over the next few years, with a significant share concentrated in the near term.
Investment Sales
Multifamily investment remained a focal point in the commercial real estate market during the first half of 2025, with sales volume showing modest growth despite a temporary dip in the second quarter. This decline was largely influenced by a major transaction in the prior year, which skewed year-over-year comparisons. Even so, multifamily continued to lead all property types by share of total sales, underscoring sustained investor interest in the sector. The Sun Belt remained dominant in overall deal volume, while improving fundamentals in the Midwest attracted increased capital. Several West Coast markets also posted notable gains, driven by renewed investor momentum and favorable market conditions.
Pricing and Returns
The apartment sector performance showed renewed strength in the second quarter of 2025, with index returns trending upward and cap rates compressing across most segments of the market. While various price indexes reflected differing degrees of appreciation, the broader trend points to improving investor sentiment and stabilizing fundamentals. Negative leverage deals, which had become more common in recent years, have started to recede as income returns improve. Apartments continued to outperform the broader commercial property market, extending a long-term trend of relative strength that has persisted since the Global Financial Crisis and gained momentum again following the pandemic.
