The multifamily real estate sector sends mixed signals as we cross the halfway mark of 2025. Activity has slowed but not stopped, and market conditions are neither recessionary nor red-hot. It’s a year of recalibration, not retreat.

For developers, investors, and capital partners, this is a moment to reassess and not react impulsively but plan strategically for what comes next. While economic uncertainty and capital constraints persist, the long-term outlook for multifamily remains sound. The fundamentals haven’t changed, but the playbook has.

Bryan Lamb, executive vice president, Ryan Companies

Capital Markets: Still the Primary Headwind

The capital markets environment continues to weigh down multifamily deal flow. Elevated interest rates remain the most significant drag on investment and development activity. As of Q1 2025, the average interest rate for permanent multifamily loans hovers around 6.1%, according to Newmark, up from sub-4% just three years ago.

The result is persistent negative leverage, where borrowing costs exceed unlevered yields. This dynamic has discouraged transactions and kept both buyers and sellers sidelined. Buyers aren’t willing to pay premium prices in today’s financing climate, and sellers are reluctant to realize losses after years of cap rate expansion[BL1] .

A related ripple effect is limited liquidity. Many LPs are still waiting for capital to be returned from previous investments before committing to new ones. The development spread, the yield differential between new builds and stabilized asset cap rates, looks relatively more attractive, especially compared to value-add acquisitions, but few are willing to act until the capital bottleneck clears.

Demand Remains Strong, But Supply Can’t Catch Up

Here lies the paradox: demand is not the problem. Demographic and economic conditions continue to support strong demand. Homeownership remains out of reach for many Americans, with mortgage rates above 6.5% and home prices near record highs. Meanwhile, new household formation has increased in many markets, especially among millennials and Gen Z renters.

According to Newmark data, national occupancy rates remain stable at around 94.5%, and effective rents increased slightly in Q1 2025, especially in suburban and Sunbelt markets.

What’s missing is new supply. According to FRED, construction starts remain well below pre-slowdown levels, down more than 30% compared to Q1 2023. While there was an 8% uptick from Q1 2024, it’s more of a modest rebound than a proper recovery. Many projects expected to break ground in early 2025 are still sitting on the sidelines. Permits may be in hand, and designs may be complete, but those developments have been shelved or delayed indefinitely without viable capital structures and unnecessary uncertainty on labor and tariff policy, which can dramatically impact construction costs.  Roughly speaking, labor and materials each represent about 50% of direct construction costs. With both sides of that equation being challenged, construction cost relief would defy basic economic theory. The result? We’re simply not adding enough new inventory to meet long-term housing demand.

Strategic Shifts: Developers Adapt to Meet the Market

The smartest players aren’t standing still. They’re retooling strategies to match the moment.

One major shift is product type. Developers are moving away from urban high-rise luxury towers in favor of suburban, low-to-mid-density wood-frame products. These communities are less expensive to build, faster to deliver, and more aligned with where today’s renters want to live.

There’s also a growing emphasis on attainability, targeting renters earning 80–120% of the area median income (AMI). It’s not “affordable housing” in the regulatory sense, but it is affordable by design: modest unit sizes, practical finishes, and reasonable common-area amenities. States like Florida are leaning into this model with programs like the “Live Local Act,” which offers tax incentives for mixed-income projects built “by right” in commercial zones.

Developers, especially those with integrated architecture and construction teams like ours at Ryan, can use typology and unit prototyping to streamline design, lower costs, and increase construction cost predictability.

Regional Priorities: Where Development Is Still Happening

While many projects are paused, development hasn’t disappeared entirely and remains attractive where fundamentals are strong and capital confidence is higher.

For example:

• Dallas and Tampa continue to attract development interest due to population and job growth, business-friendly climates, and deeper institutional buyer pools.
• San Diego and Seattle remain appealing as high-barrier markets with long-term rent growth potential, even if entry is more difficult.
• Key indicators guiding development decisions include job growth, employment diversity, housing supply pipelines, and infrastructure investment.

The Rest of 2025: What Could Shift the Market

While the current slowdown feels prolonged, most industry leaders see this as a cyclical pause, not a structural decline.

Multifamily’s underlying strengths: short lease durations, dynamic rent pricing, and essential housing utility, make it historically resilient during recessionary times. The market recovered faster than any other asset class post-2008 and during the COVID bounce-back.

What will it take to reignite activity?

• Rate cuts from the Federal Reserve, projected to begin in late 2025, could tip the balance back toward neutral or even positive leverage.
• Geopolitical stability, including easing tensions in the Middle East and more clarity on tariff policies, would also improve market confidence.
• Stabilized inflation and better construction cost predictability could restore underwriting confidence. Thoughtful labor and immigration policy could go a long way on this front. Until then, most developers plan for 2026 as the more likely window for new starts.

Final Thought: Quietly Building for What’s Next

Multifamily may be in neutral, but developers with a long-term vision are not standing still. They’re using this time to assemble land, refine products, optimize cost structures, and deepen relationships with capital.

When the market turns, and it will, those with thoughtful discipline and pre-positioned projects will lead the next growth cycle.

Bryan Lamb is executive vice president – multifamily sector leader with Minneapolis-based Ryan Companies.

Global real estate advisory firm Avison Young has been tapped to exclusively market Plum Creek: Innovation Campus. The divisible 132-acre master-planned development is within the City of Kyle, the heart of the Texas Innovation Corridor and a 25-minute drive from Austin.

The Avison Young team responsible for marketing the project includes Sullivan Johnston, Mike Kennedy, Damian McKinney, Peter Sherman and Jamie Endres-Keller.

The site is alongside and walkable to the vibrant Plum Creek: Brick and Mortar District, a high density residential and retail neighborhood anchored by award-winning parks, a Sprouts grocer, and a planned regional sports complex.

Plum Creek: Innovation Campus not only benefits from a prime location in a thriving economic corridor, it is also an affordable alternative to nearby metros, which has driven exponential population growth, transforming the city into a thriving “live, work, play” destination. This dynamic environment has attracted new occupiers like Simwon, Plastikon, ENF, Fat Quarter, and Sovereign Flavors, further enhancing Plum Creek’s reputation as a strategic hub for business expansion and innovation. Companies are finding the ability to attract and retain talent based on the affordability and family-focused amenities in the City of Kyle.

Cambridge Realty Capital provided $19,315,500 in HUD-insured Section 223(f) financing for two senior housing properties in Texas and Missouri.

The Texas financing was provided for the purchase of Ashwood Court, a 120-bed assisted living facility located in North Richland Hills.

The Missouri financing was provided for the refinance of Northland Rehabilitation and Healthcare Center, a 118-bed Skilled Care facility in Kansas City, Missouri.

Cambridge’s Early Rate Lock program was utilized, which allowed the Owners to early rate lock before all HUD approvals were obtained. An Early Rate Lock allowed each Borrower to mitigate risk associated with rising interest rates and contributed to a more predictable and efficient HUD execution, including assurance that the financings included sufficient funds to complete long-term repairs and improvements.

Marcus & Millichap brokered the sale of Hart House, a 94-unit apartment community in Dallas.  

Positioned just off Fort Worth Avenue, the property offers quick access to downtown Dallas, Interstate 30, Loop 12, and Interstates 35 and 20, placing it near some of the country’s most robust employment centers. Hart House is adjacent to the thriving Bishop Arts District and North Oak Cliff, both of which continue to benefit from significant public and private investment. 

Ford Braly, along with Al Silva, senior managing director investments in Marcus & Millichap’s Fort Worth office, exclusively marketed the property on behalf of the seller, a private out-of-state investor, and procured the buyer, an experienced local operator.  

The buyer plans to mark rents to market while maintaining the already stabilized and renovated property. 

Built in 1963 and 1964, Hart House consists of two buildings across nearly four acres at 1235 and 1239 Hartsdale Drive. The community features one- and two-bedroom apartments with walk-in closets and separate dining areas. Amenities include a swimming pool, laundry facilities, and resident courtyards. Recent capital improvements include interior renovations, significant plumbing and chiller repairs, and the addition of solar panels, which have cut electricity costs by 50%. 

The latest research from Cushman & Wakefield highlights the U.S. industrial market’s continued resilience in the second quarter, despite broader economic uncertainty and regional volatility.

National net industrial absorption totaled 29.6 million square feet in the second quarter, according to Cushman & Wakefield’s second quarter national industrial report. That is on par with the first quarter’s 30.3 million square feet, with demand concentrated in newly built logistics product.

“Large occupiers remain active, with a continued flight to quality driving demand for modern logistics space,” said Jason Price, Senior Director, Americas Head of Logistics & Industrial Research at Cushman & Wakefield. “While absorption is still below historical norms, second-quarter leasing activity and the strength of newer product show that the industrial sector is adapting to shifting market forces.”

Warehouse space completed since 2023 accounted for more than 50 million square feet of absorption in the second quarter, underscoring sustained interest in higher-quality buildings. At the same time, some markets saw consolidation and downsizing continue to outweigh demand. The West region recorded negative net absorption of 2.3 million square feet, led by losses in the Inland Empire (-1.8 million square feet) and Los Angeles (-1.1 million square feet).

New leasing activity totaled nearly 309 million square feet year-to-date, marginally outpacing the midyear 2024 total of 307.9 million square feet. Seven major markets exceeded 5 million square feet of new leasing in the second quarter, with Dallas/Fort Worth and Chicago each surpassing 10 million square feet. A late-quarter surge of large block deals (500,000 or more square feet) in Atlanta, Houston, Chicago, New Jersey and Dallas/Fort Worth helped lift quarterly leasing totals above the first quarter’s 151.9 million square feet.

Despite steady demand, the pace of new supply continued to exceed net absorption. More than 71.5 million square feet of new completions were delivered in the second quarter, with the South and West regions accounting for 68% of total volume. Although development activity remains elevated, completions have declined 44.6% year-over-year and are down 59% from the peak in the third quarter of 2023.

The share of build-to-suit deliveries climbed to 30.4% year-to-date, up from 16.8% one year ago, as developers adjust to evolving tenant needs and a softening demand environment. While total product under construction dipped only slightly quarter-over-quarter, the speculative share declined from 66% to 62.3%, the lowest level since the second quarter of 2020. Thirteen markets saw year-over-year declines of 50% or more in construction activity, down from 16 in the prior quarter.

The national industrial vacancy rate rose to 7.1%, up 10 basis points from the historical pre-pandemic average of 7%, as new product continued to outpace demand. Vacancy rates for smaller warehouses (under 100,000 square feet) remained low at 4.4%, although this segment also experienced an 80-basis-point year-over-year increase.

Average asking rents rose modestly, reaching $10.12 per square foot at the end of the second quarter, a 0.9% increase from the first quarter. On an annual basis, rents grew by 2.6%, though both the Northeast (-1.5%) and West (-1.9%) regions posted year-over-year declines.

Eighteen of the 83 markets tracked posted annual rent growth of 5% or more, down from 21 in the first quarter. Pricing for smaller-warehouse facilities remained elevated, averaging $13.51 a square foot, 31% above space sized over 100,000 square feet.

“Demand for logistics space remains resilient. Many companies accelerated imports to manage tariff exposure, prioritizing agility and flexibility in their supply chains. This is driving a noticeable uptick in activity beginning in June, as occupiers moved quickly during a window of lighter tariff pressure,” said Jason Tolliver, President, Logistics & Industrial Americas at Cushman & Wakefield. “Looking forward, market fundamentals are expected to strengthen, with demand gradually improving and supply falling rapidly. For tenants the next 6 to 12 months may present the best opportunity to secure favorable lease terms.”

Lee & Associates Dallas-Fort Worth completed a new sale transaction for a 88,821-square-foot industrial building at 840 N. Great Southwest Pkwy. in Arlington, Texas.

Corbin Blount of Lee & Associates Dallas-Fort Worth represented the Buyer, Philadelphia Hardware Group.

Harrison Putt and Corby Hodgekiss represented the Seller, CanTex Capital, LLC.