Recovery and Capital Preservation in Multifamily
The multifamily sector has always been a cornerstone of stability in commercial real estate, and 2025 is proving why this asset class remains resilient—even amid economic uncertainty and capital market volatility.
The State of Recovery
After two years of turbulence marked by rising interest rates and a surge in new supply, the multifamily market is entering a phase of stabilization. According to CBRE’s 2025 outlook, vacancy rates are expected to settle near 4.9%, with rent growth averaging 2.6% nationally. While this is modest compared to pre-pandemic highs, it signals a clear recovery trajectory as construction starts have fallen 74% below their 2021 peak, easing supply pressures and supporting occupancy gains.
Colliers echoes this sentiment, noting that household formation remains strong and renter retention is improving as affordability challenges in single-family housing persist. This dynamic is creating a “path to performance” for multifamily assets, particularly in markets where new deliveries have peaked and absorption is catching up.
Capital Preservation: The Defensive Play
Preserving capital in today’s environment requires a disciplined approach. Elevated interest rates and selective liquidity have created what Sterling Asset Group calls a “maturity pause”—a temporary reprieve for owners facing looming debt maturities. Many lenders are extending terms into 2026, buying time for values to reset and rates to normalize. For investors, this means prioritizing cash-flowing assets in high-growth metros and avoiding over-leveraged deals that could face refinancing risk.
From your own strategy discussions, leveraging public-private partnerships and affordable housing structures remains a compelling way to access cheaper capital and mitigate risk. Programs like the CDFI Bond Guarantee and Freddie Mac’s Tax-Exempt Loan (TEL) initiative are designed to lower financing costs while supporting preservation equity—critical for workforce housing and aging properties that require rehabilitation.
Why Multifamily Still Wins
Despite short-term headwinds, multifamily continues to outperform other CRE sectors. Demand remains robust, driven by demographic trends, migration to Sun Belt markets, and the widening affordability gap between renting and owning. As Newmark’s Q2 report highlights, national vacancy rates have compressed to their lowest level in three years, even as rent growth stays muted—a sign of strong underlying fundamentals. [nmrk.com]
For investors focused on capital preservation, this resilience offers a unique advantage: predictable income streams, defensive positioning against volatility, and long-term appreciation potential. In fact, multifamily lending activity has surged 27% year-over-year, signaling renewed confidence in the sector.
Key Takeaways for 2025
Focus on fundamentals: Target stabilized assets in markets where supply has peaked and absorption is strong.
Preserve liquidity: Avoid aggressive leverage; prioritize flexible financing structures.
Leverage partnerships: Explore CDFI and TEL programs for affordable housing strategies.
Stay defensive: Multifamily remains CRE’s most resilient asset class—position accordingly.
