Multifamily absorption is set to be more modest this year after demand for rental units significantly outperformed forecasts during the past 12 months, according to Northmarq’s 2025 national sector outlook.
Renters moved into about 480,000 units on net last year, nearly double the total in 2023. The surge in renter demand occurred in most major metropolitan areas and offset much of the new construction that was delivered, according to the report.
Typically, absorption is closely tied to new job creation. Every eight jobs created commonly results in one unit of net absorption, but the ratio was closer to five-to-one last year. This suggests that multifamily operators captured a larger-than-expected share of new households created as the economy expanded. This trend was likely exacerbated by a slowing pace of renters transitioning to home ownership, according to Northmarq. First-time homebuyers accounted for the lowest share of transactions in more than 40 years, data from the National Association of Realtors shows.c
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The market could go in a few different directions, according to Northmarq. In one scenario, economic growth and gains across the market will closely track 2024 levels and sustain the pace of absorption throughout 2025. However, it is more likely the market will revert to longer-term employment-to-absorption patterns of about 225,000 units, Northmarq said.
“That figure is likely a bit too low, given the obstacles to home ownership of high mortgage rates and elevated home prices are expected to persist throughout much of 2025,” the report said. “The current forecast calls for approximately 300,000 units of net absorption in 2025. Historically, the national market has averaged about 200,000 units of net renter demand per year, and this would mark a third consecutive year topping that total.”
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
