Cyclical Recovery Just Ahead: Why Multifamily Remains a Top Investment in 2025

The multifamily sector continues to shine as the most preferred asset class for commercial real estate investors in 2025, driven by solid fundamentals and a promising cyclical recovery. Despite headwinds from rising interest rates and a historic wave of new supply, strong renter demand is paving the way for improving occupancy, accelerating rent growth, and a surge in investment activity. At 1031 DST Solution presented by Corcapa 1031 Advisors, we believe multifamily remains a cornerstone for 1031 exchange strategies—here’s what the data tells us and what it means for your portfolio.

A Turning Tide for Multifamily Fundamentals

The numbers paint an optimistic picture. CBRE Research forecasts the average multifamily vacancy rate to settle at 4.9% by the end of 2025, with annual rent growth averaging 2.6%. While 2024 brought challenges—particularly in high-supply markets—many regions are already past their peak delivery phase. Occupancy rates are rebounding, and markets with negative rent growth last year are poised to flip positive in 2025 as construction slows.

Developers are set to deliver more multifamily units than at any time since the 1970s, with the Sun Belt and Mountain regions leading the charge. Some markets in these areas will see inventory swell by nearly 20% over just three years. Yet, the tide is turning. Ten of the 16 markets with the largest supply pipelines—including Austin, Atlanta, and Dallas—hit their delivery peaks by late 2024. The remaining six (Charlotte, Fort Lauderdale, Phoenix, Raleigh, Riverside, and San Antonio) will crest in 2025.

What’s driving this recovery? A marked slowdown in construction starts—down 74% from their 2021 peak by mid-2025 and 30% below pre-pandemic levels—combined with unrelenting renter demand. This demand, fueled by job creation, population growth, and competitive leasing incentives, has already absorbed much of the new supply. Add in a single-family housing market that remains out of reach for many, and the stage is set for tighter vacancies and stronger rent growth by 2026.

Renting vs. Buying: The Demand Driver

The gap between renting and homeownership costs is a key force keeping renters in multifamily properties. CBRE’s Q3 2024 forecast highlights a stark premium: the average monthly cost of a new home mortgage (with a 10% down payment and prevailing rates) far outpaces rent. In major markets, buying a home in 2025 could cost two to three times more than renting—a gap widened by high home prices and mortgage rates.

This disparity isn’t easing soon. Nearly 80% of current homeowners enjoy mortgage rates below 5%, making them reluctant to sell in today’s high-rate environment. For renters eyeing homeownership, that dream remains deferred—bolstering multifamily demand and occupancy through 2025 and beyond.

Regional Variations: Where Opportunity Lies

Not all markets are recovering at the same pace. The Midwest, Northeast, and six gateway markets (think New York, Boston, and San Francisco) have kept vacancy rates closer to historical norms, avoiding the oversupply pressures felt in the Sun Belt and Mountain regions. These steadier markets are projected to see rent growth exceeding 3% in 2025—well above the national 2.6% average—making them attractive for near-term returns.

The Sun Belt and Mountain regions, while challenged now, hold long-term promise. As construction pipelines shrink and fundamentals strengthen, these high-growth areas will draw outsized investment. Investors may need to wait until 2026 or later for peak performance here, but the trajectory is clear: rising occupancies and rents are on the horizon.

Why Multifamily Fits Your 1031 Strategy

For investors performing 1031 exchanges, multifamily’s resilience and growth potential make it a standout choice. The sector’s ability to weather supply waves while capitalizing on renter demand aligns well with the tax deferral benefits of a 1031 exchange. Whether you’re eyeing stabilized properties in the Midwest or growth plays in the Sun Belt, the data suggests 2025 is a year to act—before the next upcycle tightens opportunities.

At 1031 DST Solution presented by Corcapa 1031 Advisors, we specialize in guiding clients through these market shifts, identifying properties that maximize tax advantages and long-term value. The cyclical recovery ahead is an opportunity to position your capital strategically.

Ready to explore how multifamily can enhance your 1031 exchange? Contact us today at (949) 722-1031 to discuss your next move in this dynamic market.

Source: CBRE Research, CBRE Econometric Advisors, Q3 2024.

1031 DST Solution presented by Corcapa 1031 Advisors works with you to ensure your DST choices align with your objectives. Contact us at (949) 722-1031 or schedule a consultation to discuss your specific goals.