If you’ve been watching the multifamily market, you know last year was challenging. With new construction flooding the market, capital calls abounding, and rising costs creating pressure on investments, it was a grinding year of uncertainty. Today, that story has shifted dramatically, creating new reasons for optimism and a collective sigh of relief among passive multifamily investors.
Here are the four shifts:
1. Supply Has Tightened Significantly
Earlier this year marked an important shift: demand outpaced new supply for the first time since 2021. In the first quarter, developers delivered 95,000 units, but tenants leased 102,000 units. This change immediately reduced vacancies and started easing concessions, shifting the conversation from filling vacancies to raising rents sustainably.
2. New Construction Is Slowing Down
Not only did demand outpace supply in a single quarter, but the construction pipeline has also significantly contracted. Currently, around 545,000 units are under construction, marking the lowest level since 2018 and nearly half the volume compared to two years ago. Factors contributing to this slowdown include:
- Rising construction costs due to tariffs increasing budgets by approximately 3% to 4%.
- High borrowing costs, with average fixed mortgage rates near 6.76%, causing developers to pause or cancel projects.
Fewer new projects starting today mean reduced competition for existing multifamily assets tomorrow.
3. Rents Are Gaining Momentum
With fewer units coming to market, rents are stabilizing and even beginning to increase again. National rents saw modest increases of about $5 per month in March and April, with occupancy holding firm at around 94.5% since January. Markets such as New York City, Columbus, Chicago, and Kansas City are already seeing annual rent growth between 3% and nearly 6%, signaling stability and gradual improvement.
4. Investor Confidence is Growing
Investors are noticing this positive shift. According to a recent Berkadia poll, 83% of respondents plan to acquire multifamily assets this year. Property values remain 15% to 20% below their 2021 peaks, while recent transactions in early 2025 have shown modest cap rate compression, indicating investors' growing confidence that rental income will outpace borrowing costs.
What Does This Mean for Investors?
- Stable Cash Flow: Mortgage payments remain substantially higher than apartment rents, keeping renter demand steady and turnover low.
- Asset Scarcity: With higher construction costs and stricter financing, new developments become more difficult, enhancing the value of existing properties.
- Potential for Appreciation: If borrowing costs stabilize or decrease in late 2025 or early 2026, property values could experience significant appreciation due to lower cap rates and increasing income.
Final Thoughts
Today’s multifamily market presents strong opportunity, one shaped by tightening supply, steady demand, and improving financial conditions. Passive investors have a chance to leverage these positive shifts and position themselves strategically for both stability and growth. Rather than navigating uncertainty, the path ahead now offers clarity, making 2025 an ideal year to strengthen or diversify your multifamily investment portfolio. As market conditions continue to tilt in favor of current and prospective multifamily investors, staying informed and proactive will be key to capturing the benefits of this favorable environment.
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About Ellie Perlman
Ellie Perlman is the founder and CEO of Blue Lake Capital, a woman owned multifamily real estate investment firm focused on partnering with family offices and accredited investors to build and preserve generational wealth. Since its founding in 2017, Blue Lake has successfully acquired and operated multifamily assets across high-growth U.S. markets, completing $1B+ in transactions.
At Blue Lake Capital, Ellie and her team work exclusively with family offices and accredited investors, offering carefully curated investment opportunities that emphasize long-term wealth creation, stability, and risk-adjusted returns. A defining aspect of Blue Lake’s investment strategy is its integration of advanced AI-driven analytics and data science into the entire lifecycle of acquisitions and asset management. By leveraging cutting-edge technology, the firm executes data-driven forecasting on market trends, asset performance, and tenant behavior, ensuring strategic decision-making and optimized returns.
In addition to leading Blue Lake Capital, Ellie is the original founder and host of "REady2Scale - Real Estate Investing" podcast, which provides insights into multifamily real estate, alternative investments, and finance.
Ellie began her career as a commercial real estate attorney, structuring and negotiating complex transactions for one of Israel’s leading development firms. She later transitioned into property management, overseeing over $100M in assets for Israel’s largest energy company.
Ellie holds a Master’s in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can learn more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com. *The content provided on this website, including all downloadable resources, is for informational purposes only and should not be interpreted as financial advice. Furthermore, this material does not constitute an offer to sell or a solicitation of an offer to buy any securities.