Several leading apartment companies plan to buy, sell, or start to build more apartments in 2025 than they have in years—with many planning to do all three.
Many believe the time is finally right to commit to plans they have delayed for years.
As 2025 begins, new renters had signed leases at hundreds of thousands of new apartments. A strong U.S. economy has avoided recession. Short-term interest rates have finally begun to drop, though long-term rates are still volatile. And the gap has finally begun to close between the prices many potential buyers have been willing to pay for apartment properties and the prices sellers have been willing to accept.
“We’ve definitely seen more of a meeting of the minds between buyers and sellers over the past three to six months,” says Stephanie Wiggins, head of agency and Federal Housing Administration production at PGIM Real Estate.
But apartment investors have been hopeful before.
“We’ve been on a roller coaster over the past couple of years,” says John Sebree, senior managing director and head of real estate investment sales at Lument, working in the firm’s offices in New York City. Over and over again, interest rates seemed to stabilize, only to quickly shift higher or lower depending on economic data or Fed sentiments. “We’ve had a couple of false starts.”
Interest Rates Still Volatile
After more than two years of chaos in the real estate capital markets, the outlook for interest rates is still the biggest question mark hanging over 2025. Ever since interest rates began to rise in March 2022, many apartment investors have felt frozen in place.
“It’s really all about the cost of finance,” says Jim Costello, executive director of MSCI Research, based in New York City.
Developers broke ground on very few apartment projects over the past year. High interest rates and building costs made it nearly impossible to justify new construction. At the same time, investors have bought very few apartment buildings. The same high interest rates cut into how much potential buyers could afford to pay, while many potential sellers refused to lower their prices. Many potential sellers simply did not offer their properties for sale.
Federal officials finally began to cut short-term interest rates in fall 2024. Long term-interest rates have been unpredictable, however. The benchmark yield on 10-year Treasury bonds has risen or dropped by more than a dozen basis points in a single day dozens of times in the last year.
“The volatility creates a lot of scare in the marketplace,” says Dave Borsos, vice president of capital markets for the National Multifamily Housing Council (NMHC), based in Washington, D.C.
However, many investors believe that long-term interest rates have begun to stabilize in a range, with the yield on 10-year Treasury bonds bouncing between 4% and 5% in the last months of 2024. That expectation is helping deals happen.
“Stabilization will bring greater investor activity into the marketplace,” says Andrew Kadish, CEO of CAPREIT, with offices in North Bethesda, Maryland.
He should know—CAPREIT is scheduled to close on more than $200 million in apartment product by the end of the first quarter. That’s notably more than in 2024 when CAPREIT acquired two communities and sold several communities, mostly legacy assets in which the team met or exceeded all objectives in the business plan.
Volatile interest rates are still a barrier.
“It’s hard to get a deal across the finish line when you are under contract and the interest rate changes by 70 basis points,” says Peter Standley, vice president and director of the Multi Housing Division for Marcus & Millichap.
Uncertainty may also strike again in 2025. When President Donald Trump returns to the White House, he has promised tough new policies on trade and immigration that could trigger higher prices and labor costs. Though it’s not clear how or if these policies and others will be implemented.
Deals Start to Get Done
Apartment investors had already started to close more deals as 2024 came to an end.
“Our platform is going to be bringing more to the NMHC [Annual Meeting at the end of January], which is obviously the biggest industry conference, than we did last year,” says Kelli Carhart, executive managing director for CBRE. “We see larger transactions. Larger single-asset and portfolio opportunities have been much more frequent in the last 90 days than they were in the entire first half of the year.”
Data from across the nation also shows more activity. “Volume is starting to grow,” says MSCI’s Costello.
Apartment investors spent a total $121 billion to buy apartment properties in the United States in the first 11 months of 2024, according to data from MSCI.
The transactions in 2024 include the giant deal in which Blackstone acquired Apartment Income REIT (AIR Communities) in April in an all-cash transaction valued at approximately $10 billion, including the assumption of debt. Even without that unusual deal, apartment investors still spent 1% more in the first 11 months of 2024 than they did in the entirety of 2023.
The deals in December had not yet been counted at press time, but the end of the year is often the busiest time for real estate transactions. No matter how busy December was, however, apartment investors were unlikely to match the record $359 billion that closed in 2021 or even the “normal” level of transactions averaging $169 billion a year from 2015 to 2019.
“It’s down from the peak, and it’s down from pre-pandemic trends,” says Costello.
According to Wiggins, “We’re finally seeing more normalcy in the market, and we’re clawing our way back after a 75% decrease in investment sales transactions activity in 2023. Real estate valuations have nearly reached the bottom.”
“We’re bracing for a busy 2025. We’re focused on recruiting and retaining talent so that we’re best prepared to capitalize on these opportunities,” she adds.
As buyers and sellers close more transactions, prices for apartment properties have begun to adjust to higher interest rates.
Investors bought apartment properties at an average cap rate of 5.6% in November. That was up 30 basis points from the prior year, according to MSCI. It’s also up from a low of 4.7% in 2022. That’s an increase of almost a percentage point since interest rates began to rise in March 2022.
“The bid-ask spread of buyer and seller expectations has tightened,” says Frank Roessler, co-founder and CEO of Ashcroft Capital, a real estate investment firm headquartered in New York City. The firm either bought or went under contract to buy $325 million in apartment properties in the second half of 2024. The burst of activity marks the first acquisitions for Ashcroft Capital since August 2023.
Some sellers have finally accepted that interest rates are not going to fall suddenly. “They’re making realistic decisions and capitulating,” says Roessler. Potential buyers are also becoming more realistic about how deep a discount they can get.
Ashcroft plans to buy five to eight more apartment properties this year.
In August, Ashcroft acquired a 354-unit, garden-style multifamily community in Winter Garden, Florida. Built in 2021 as the Braxton Waterleigh, the firm has rebranded the community to Halston Waterleigh. “We’re trying to buy below construction costs,” Roessler says. “The property is going to get a strong return to our investors, and it’s issuing current cash-on-cash yield as well.”
Even as it plans to buy, Ashcroft Capital is also selling. “We have two properties under contract,” says Roessler. “We’ll be looking to sell probably about five in 2025.”
Potential buyers can also find more properties offered for sale. “There are definitely more higher-quality assets that are available that are competitively bid,” says Wesley Wilson, chief financial officer and chief investment officer at Avanath Capital Management, headquartered in Irvine, California. The firm did not acquire any properties in 2024. But as the year progressed, more apartments properties in better condition came to market.
“I would imagine us doing anywhere between five to 10 deals this year,” says Wilson.
In 2025, apartment investor Comunidad Partners, based in Austin, Texas, plans to reevaluate deals that were previously stalled by high borrowing costs, says Jim Howard, chief operating officer at Comunidad. The firm is also exploring its options to refinance properties with loans that will expire in the next few years.
“We will likely acquire more in 2025 versus 2024,” says Howard. Over the past six months, the firm acquired two properties, including Toscana Apartments, a 358-unit asset in Austin. Comunidad is planning capital improvements to further elevate common areas and living spaces. In comparison, in 2021, the firm expanded its portfolio by 1,200 apartments.
Rents High Despite Tremendous Competition
Apartment properties are also performing surprisingly well, even though developers delivered a record number of new apartments in 2024. That forced many property managers to offer steep concessions to attract tenants in overbuilt markets.
Developers completed 520,000 new apartments in 2024, according to Marcus & Millichap. That is more new apartments than any other single year in more than 25 years. The number of new apartments will decrease in 2025 with developers planning to bring online another 410,000 units. In comparison, from 2015 through 2019, developers completed an average 301,000 units a year.
“A year ago, we were all very concerned about competition from the peaking wave of new construction. The industry expected to see a tremendous vacancy,” says Lument’s Sebree. “Even with deliveries at a record pace, occupancies stayed relatively strong, and rent growth continued in many markets. That surprised a lot of people.”
The number of occupied apartments in the nation grew by more than 650,000 last year. That’s the second-largest annual absorption figure in the past 30 years, says Carl Whitaker, chief economist for the data analytics division at RealPage, based in Richardson, Texas.
New renters rushed to sign apartment leases in 2024 even though the economy produced fewer new jobs than the year before. That’s partly because high interest rates also made it harder for renters to buy single-family houses or condominiums in 2024. The percentage who renewed apartment leases rather than moving grew to 55% in 2024, up from 53% in 2023, according to RealPage.
“Favorable long-term demographics support sustained multifamily demand—particularly as high home prices keep younger generations in the rental market,” says Laura Khouri, president and chief operating officer of Western National Property Management.
Apartments became more affordable as wages grew faster than rents. Consumer sentiment also improved as prices for necessities like groceries and gasoline rose less quickly in 2024. “Many of the demand drivers that supported strong absorption in 2024 appear likely to carry forward into the following months,” says Whitaker.
The percentage of apartments occupied in 2025 is likely to rise to between 95% and 95.3% in 2025, says Whitaker. That’s just a few basis points off the late 2010s cycle occupancy rate of roughly 95.5%. Other apartment economists agree the occupancy rate will be roughly 95% in 2025—close to the rate they consider “fully occupied.”
Performance will vary from market to market. The places where developers have built the largest number of new apartments face the biggest challenges.
“You have some markets like Dallas, Phoenix, and Atlanta where you’re seeing higher than average vacancy rates,” says Marcus & Millichap’s Standley.
These overbuilt metro areas will benefit from the same factors—like population growth—that attracted developers. “We expect those markets to have strong absorption and bounce back pretty strongly by the middle to the end of 2025,” Standley says.
Stronger apartment markets should also help investors make deals in the coming year. As the income produced by properties improves, that can make up for problems like the stubbornly high cost of financing.
“We see fundamentals improving, which will contribute to more transactional volume,” says CBRE’s Carhart. “We’re going to be up from last year.”
Apartment rents are also likely to keep growing after 2025. That’s because after the new apartments that open in 2025 find residents, supply is expected to drop for 2026 and 2027.
But demand for apartments is likely to continue to grow. The United States will need 4.3 million more apartments to be built by 2035 to address current and future demand, according to an NMHC report.
Developers started construction on just 250,000 new market-rate apartment units in the 12 months that ended in the third quarter of 2024. That’s more than 170,000 fewer units than the year before—a 40% decrease, according to RealPage.
The same high interest rates that prevent investors from buying apartment buildings has kept developers from breaking ground.
“The nation could be on course to see fewer than a quarter of a million new apartment units deliver per annum” from 2026 though 2028, says Whitaker. That would be well below the norm set in the five years before the pandemic.
Development Won’t Be at a Standstill in 2025
A growing number of developers are planning to start building new apartments in the next year.
“We’re still facing a national housing shortage with dynamic demographic shifts across multiple markets,” says Frank Liu, managing director at Canyon Partners Real Estate, which plans to participate in new development in 2025. “Those projects will deliver units with the newest features and amenities into an environment with much less competition.”
PEG Cos., based in Provo, Utah, has amassed eight large development sites in areas like Irvine, California; Frisco, Texas; and Atlanta and has begun to engage architects and engineers in the planning of several transformative apartment developments, each worth several hundred million dollars. The firm has committed to start construction on at least one of these developments by the end of 2025.
“We’ve gone in front of the city to actually get entitlements, and there are timelines associated with that,” says Garett Bjorkman, PEG’s co-CEO.
Value-added investors are also once again buying older apartment properties to renovate and raise rents.
Western National Group (WNG) recently acquired Vista Imperio Apartments in Riverside, California. “WNG plans to remain active in multifamily development in 2025, particularly through value-add opportunities,” says Khouri.
WNG aims to modernize unrenovated units and enhance amenities to “deliver comfortable, high-quality living experiences while responding to the high demand of middle-income renters,” she notes.
