Multifamily housing as an industry is expanding from implementing new technology and processes to larger teams to companies broadening their footprints. AI and centralization are only portions of the larger picture that when used can affect different segments of the industry and separate processes along the way. Other external factors include interest rate activity and construction and development.
The economy has stabilized, and inflation is easing compared to the past several years. The Federal Reserve cut rates in late 2024 following the general election in November. “I expect rate cuts to continue, which will help the cost of financing construction loans and short-term lending; however, I am unclear as to the impact this will have on longer term debt,” says Jake Marshall, Chief Operating Officer, The Breeden Company. “My assumption is that long-term yields remain relatively flat and slowly increase over time. I expect transaction activity to remain at its muted pace in the coming year as we continue to grapple with high costs and relatively expensive financing.”
The potential for new rules and regulations following the election can affect the industry to some extent. “Outside of an election year, the potential set of regulatory and economic policy scenarios should narrow, thereby increasing confidence in markets for development capital, acquisitions and financing,” says Fernando De Leon, founder and Chief Executive Officer of Leon Capital Group. “We expect to see transaction volume accelerate through 2025, creating expanding data points for benchmarking. With the anticipation of supply absorption and rent growth in 2H25, we expect to see the asset class experience material yield increases, value appreciation and capital inflows.”
Another barrier to development is NIMBYism, or Not In My Backyard—those opposed to multifamily housing development. “The best ways to overcome this barrier is by building new buildings inside old buildings, through office conversions, mill conversions, school conversions and the rehab of existing multi-family housing,” says Larry Curtis, President and Managing Partner of WinnDevelopment. “Building new on empty land is very, very difficult, extremely costly and often incongruous with rational risk/reward business practices. Time is the enemy in which most deals die.”
The cost of materials and labor in apartment construction is also a concern for Laura Khouri, who says there are underlying issues. “This drop off in construction is boosting the value of existing multifamily assets, which could be a barrier to transactions penciling given the high cost of debt at this juncture,” says Khouri, President and COO of Western National Property Management. “However, if these barriers ease up via lowered interest rates and reduced inflation, and public-private partnerships can successfully emerge between cities and developers, we will see an increased delivery of multifamily communities in 2025 that will help meet the large demand from renters.”
Other ways to ease development barriers include improving materials supply chains and streamlining the permitting process, says Struan Robertson, Senior Vice President of Investments-Residential at CRG. “Expediting permits for key projects can help reduce delays, while investing in workforce training and apprenticeship programs can bridge labor gaps,” Robertson says. “Developers can also secure long-term contracts with suppliers and diversify sourcing strategies to mitigate material cost volatility.”
While family formations continue to grow and renters are staying in one place longer, larger apartment homes can be expected, says Jonas. “While average apartment sizes have declined over the past five years, I believe demand for two- and three-bedroom apartments will rise, with more spacious layouts becoming the norm.”
At the community level, FirstService Residential starts with the “4Ps” of essential amenity features: People-focused services, pet-friendly spaces, efficient parking solutions and seamless package management. “These features are becoming non-negotiables for attracting and retaining residents; they will continue to set the standard for multifamily success in 2025,” says CEO David Diestel. “Developers should consult experienced property management teams from day one to execute a successful and diverse amenity activation.”
Quality-of-life and health-focused amenities are vital, says Betsy Collins, Vice President, Development, The Peabody Companies, which is placing amenities traditionally seen at market-rate communities at affordable housing communities. “At Peabody, we’re prioritizing these enhancements to ensure our residents have access to enjoyable and active lifestyle options. A prime example is the addition of pickleball courts in new communities where space allows, reflecting our commitment to creating engaging and wellness-centered environments.”
CRG has also noticed residents are searching for a sense of community while at student-housing properties. So, the company is working to connect that with amenities through technology, design and style with a focus on social hubs like food and coffee areas and shared work environments. “These trends reflect a shift toward creating environments that are not only functional and tech-friendly but also promote meaningful social connections,” says Alison Mills, Vice President of Design and Development at CRG.
Read Part One of this three-part executive preview.
Michael Miller is NAA’s Managing Editor.