Transaction activity in the multifamily sector is poised for a potential rebound in 2025, as market conditions stabilize and investor sentiment shifts. However, developers and investors caution that the recovery will unfold unevenly across different housing segments, with cap rates, interest rates, and varying risk appetites shaping the pace and scope of that recovery.

At Marcus & Millichap’s annual multifamily investment outlook webcast, John Chang, the firm’s senior vice president, highlighted rising consumer sentiment as a key factor supporting absorption in the coming year. “We’re seeing a bump up in sentiment, and we anticipate that will bolster absorption numbers through at least the first few quarters of the year,” Chang said. He also flagged supply challenges, including labor shortages and tariffs on construction materials, as potential constraints on new development.

Transaction volumes remain well below pre-pandemic levels, with sales activity down 25% in transaction count and 20% in dollar volume compared to 2014–2019 averages, according to Chang. High borrowing costs, rising expenses, and sidelined institutional capital have curbed deal flow, but Chang noted signs of recovery in secondary and tertiary markets. “The differentiation in cap rates between primary and secondary markets has narrowed to just 10 basis points,” he said, underscoring a shift in demand toward smaller cities.