For the data behind the commentary, download the full Q1 2025 U.S. Multifamily Report.
Demand Momentum Continued into Q1 2025
On the heels of the second strongest year for multifamily absorption since the turn of the century, the momentum continued in Q1 2025. More than 100,000 units were absorbed, 12% higher than a year prior, and nearly 40% stronger than the pre-pandemic (2017-2019) first quarter average.
The South continues to see the strongest demand in the nation, driven by outsized population growth. The region accounted for 53% of nationwide move-ins in the first quarter. Dallas/Ft. Worth and Phoenix were the standouts this quarter, leading the nation in absorption with 7,500 and 5,100 units, respectively. On a percentage basis, Sarasota and Huntsville each absorbed more than 2% of their inventory in the first quarter. These two metros also have the highest vacancy in the U.S., so the strong demand observed in Q1 is perhaps kickstarting the recovery in fundamentals.
The outlook for demand growth moving forward is understandably cloudy, given the economic uncertainty. Multifamily demand has proven resilient through economic cycles (more later in the outlook section), and the structural shortage of housing will remain a key theme moving forward.
Lack of Construction Starts Caught Up to the Market
The shrinking multifamily construction pipeline has been the proverbial “light at the end of the tunnel” for investors as the rate-hiking cycle took off in 2022. Those days seemed far off in 2022, as the market grappled with the largest wave of deliveries since the 1970s. But the long-awaited pullback has arrived; new deliveries have declined by 20% for two consecutive quarters to the lowest levels since late 2022. Vacancies, in turn, shifted down by 10 basis points (bps)—a relatively nominal decline but a notable one given the increase in vacancy over the past few years.
Nationally, just 545,000 units remain under construction, the lowest figure since 2018. And with trailing 12-month construction starts down 36% YOY—and likely to come down further given the economic uncertainty—the pipeline is unlikely to fill up any time soon. That will leave plenty of room for further recovery in fundamentals as long as demand growth remains positive.
Texas continues to lead the nation in the pullback in construction. Dallas/Ft. Worth, Austin, and Houston lead the nation in declining pipelines over the past year, with nearly 60,000 fewer units under construction today compared to a year ago. Atlanta (-17,000 units) and Phoenix (-16,000 units) also saw significant declines in their pipelines over the past year.
Rent Growth Continues to Show Mild Improvement
Rent growth has shown consistent improvement from the third quarter of 2023, when it bottomed out below 1.5%. Since then, each quarter has shown some, albeit sometimes imperceptible, improvement. Rounded figures place the market at around 2% growth for the past few quarters, but it’s jumped from 1.97% to 1.99% to now posting 2.02% YOY growth. At the same time, competition for renters remains fierce, with vacancy rates still well above their historical averages. The widespread use of concessions continues to suppress effective rent growth. On average, effective rents increased by just over 1%, about half the growth seen in asking rents.
Across markets, asking rent growth continues to outperform in the Northeast (3.2% YOY) and Midwest (3.9% YOY). Northeast Arkansas, which led the nation at 5.9% rent growth, and San Jose, with a 4.2% YOY increase, were the only markets outside the Northeast or Midwest to rank among the top 15. The latter points to a burgeoning storyline: both San Jose and San Francisco (3.7% YOY) are finally showing signs of recovery after relatively minimal rent growth over the past five years.
On the other hand, rent declines are relatively concentrated to just two supply-heavy markets. Rent growth is down 2.7% in Austin and 2.2% in Denver as the markets continue to work through robust deliveries. The former saw more than 8.5% of its inventory deliver over the last year, while Denver saw nearly 6.5% of its inventory come to market in the past 12 months.
For the data behind the commentary, download the full Q1 2025 U.S. Multifamily Report.
