Multifamily Market Outlook: 2025 & Beyond

Multifamily Market Outlook: 2025 & Beyond

By Daniel Kaufman | Kaufman Real Estate & Consulting

Introduction

The multifamily housing market is undergoing a shift in response to record-high supply levels, declining construction starts, and a changing interest rate environment. While the pipeline of under-construction projects remains high, new development is slowing, with 2026 expected to see the sharpest decline in new supply before a potential rebound in later years.

For real estate developers and investors, understanding these trends is critical for timing acquisitions, project planning, and investment strategies in the multifamily sector.

This report breaks down key takeaways from the Q1 2025 Yardi Matrix Multifamily Supply Forecast and what they mean for the short-term and long-term outlook of multifamily development.

Short-Term Market Forecast: 2025–2026

Multifamily Completions Remain Elevated in 2025, But a Slowdown is Coming

• 2025 will deliver approximately 525,000 new multifamily units, making it the second-highest year for new completions since the 2008 financial crisis, just behind 2024’s record-breaking volume.

• Construction starts dropped 40% in 2024, which will lead to a significant decline in new supply by 2026.

• Forecasted completions in 2026 have been revised up 11.5%, but this still represents a sharp drop to 414,000 units.

• By 2027, new supply is expected to bottom out at 341,000 units before rebounding in 2028 and beyond.

Under-Construction Pipeline Declining, But Still Large

• At the end of Q4 2024, the number of multifamily units under construction fell by 7.2% YoY.

• Despite this decline, the pipeline remains at historically high levels, with over 1.165 million units still under construction—meaning strong deliveries will continue through 2025.

• Pre-leased units within the under-construction pipeline peaked in mid-2024 and are now declining, signaling more leasing challenges for newly completed properties in 2025.

Longer Construction Timelines Impacting New Development

• Average completion times for multifamily projects have hit record highs:

• Garden-style projects: 694 days (23.1 months)

• Mid-rise projects: 839 days (28.0 months)

• High-rise projects: 940 days (31.3 months)

• These extended timelines will further delay the arrival of new supply, exacerbating the 2026 supply slowdown and contributing to pipeline constraints for developers.

Long-Term Market Outlook: 2027–2030

Market Rebalancing Expected by 2027

• As construction starts remain low in 2025 and 2026, new supply will bottom out in 2027.

• By 2028, development is projected to increase again, driven by pent-up demand and potential interest rate shifts.

• The Federal Reserve’s current “higher-for-longer” rate policy is constraining development—but any future rate cuts could spur a resurgence in starts beyond 2026.

Shift in Development Trends: Growth in Affordable & SFR Segments

• Market-rate and partially affordable multifamily units will account for a shrinking share of new supply, falling from 84.3% in 2019 to a projected 77.5% by 2027.

• Meanwhile, affordable housing development is increasing, with 47,457 new units forecast for 2027, up 16.3% from 2019.

• Single-Family Rental (SFR) development is booming, with new supply expected to nearly triple between 2019 and 2027, reaching 18,779 units in 2027.

Pipeline Growth Indicates a Longer-Term Rebound

• The planned development pipeline reached 1.14 million units at the end of 2024, reflecting a slow but steady flow of new projects.

• The prospective pipeline expanded by 10.6% YoY, showing that while new development is slowing now, long-term optimism remains strong.

• However, financing challenges remain a major constraint, with projects spending an average of 490 days in the planning phase—30% higher than pre-pandemic levels.

Implications for Real Estate Developers & Investors

1. Expect Increased Leasing Challenges in 2025

• With record-high completions, many markets will see rising vacancy rates and increased lease-up competition.

• Developers should focus on targeted marketing strategies and offering competitive incentives to attract renters.

2. Prepare for Supply Tightening in 2026-2027

• The sharp drop in new supply by 2026 and 2027 could lead to a stronger rental market for stabilized properties.

• Investors should look at acquiring assets in late 2025 and early 2026, when supply peaks and competition eases.

3. Financing for New Development Will Remain Challenging

• Tighter lending conditions and higher development costs will continue limiting new starts.

• Investors should focus on well-capitalized projects with strong fundamentals rather than speculative new developments.

4. Look at Alternative Investment Strategies

• The rise of SFR and affordable housing development suggests opportunities in these segments.

• Value-add multifamily acquisitions could become attractive, particularly in markets with supply overhangs where pricing corrections occur.

5. Interest Rate Policy Will Be a Key Market Driver

• The Federal Reserve’s rate path will significantly impact construction starts and investment decisions.

• A shift to lower rates in 2026-2027 could fuel a rebound in development and acquisitions.

Conclusion: Strategic Positioning for 2025 & Beyond

For developers and investors, the multifamily market is at a turning point. While 2025 will see continued supply pressure, the slowdown in new starts means a tighter rental market could emerge by 2026-2027.

Opportunities exist for those who plan ahead:

• Investors should look at acquiring properties in 2025-2026 at potential discounts before the market tightens.

• Developers should evaluate SFR and affordable housing opportunities, where demand remains strong.

• Financing constraints will keep competition lower, creating selective opportunities for well-capitalized players.

Navigating this changing landscape will require a proactive approach—but for those who position themselves strategically, the next few years could offer compelling investment opportunities.

📩 For more insights and custom market analysis, reach out to Kaufman Real Estate & Consulting.

Daniel Kaufman

Kaufman Real Estate & Consulting