It's been a long two years of record multifamily construction. The impact on supply and, as a result, vacancy and rent growth rates are well-discussed in commercial real estate circles.
But as 2025 approaches, there is also the expected slowdown and end of the expansion — over the next 12 to 18 months, according to Moody's. That should mean a chance for vacancies to lower and rental rates to rise, the latter rising to 3% per annum in 2025 and 2026.
Moody's has been following and forecasting where the greatest opportunities for rent growth might be. They expect the Southwest to offer the best rent growth of 3.4% in 2025. Northeast is second at a 3.3% rate. The Midwest would be an expected 3.0%. South Atlantic is second to the last at 2.9%, while the West comes in after the others at 2.2%. The overall rate for the US will be 3.1% if Moody's is correct.
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The best-performing metro area out of the top 82 examined would be Wichita, Kansas, with rents increasing 9.8% next year. But that is climbing up from where it is now. In the third quarter of 2024, the metro area had the third-lowest effective rent level of $816. Out of the top 82 metros, 75 had effective rents of at least $1,000 in the third quarter.
That complicates any measure of rent growth. Is an investment better because of a potentially faster rent growth rate next year if the property starts far enough behind others? A faster rate later might not provide as much total rent as a higher one earlier with slower growth next year. But then, there is also the question of the rent-to-income ratio. "Even with forecasted rent growth of nearly 10% in 2025 and hypothetically if we also assume flat wage growth, the ratio would still remain below 16% and continue to fall within the least rent-constrained area of the distribution," they wrote.
Compare that to Miami, with a projected 5% rent growth for 2025, which would make the figure about 42% higher than at the end of 2019 versus the national gain of 24%. The metro would end up at $2,239 in 2025 versus $2,133 in 2024.
At the lowest end of the projections is Providence, Rhode Island, seeing a -0.9% drop, turning the 2024 $1,681 rent to $1,666. That's followed by Colorado Springs, Colorado, with a -0.7% fall, meaning that the 2024 rent of $1,311 drops to $1,302.
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