2025 Multifamily Real Estate Outlook

CHARLESTON, SC | January 8, 2025

As we kick off 2025, the real estate team at Ballast Rock Asset Management wanted to share our thoughts on some of the key trends we saw last year, as well as provide an update on our outlook for the year ahead.

For many real estate investors, including Ballast Rock Asset Management, we expected 2024 to be a constructive year for multifamily real estate. While there were some positive data points, the sector faced some significant headwinds throughout 2024, including:

• Despite headline inflation rates trending lower, growth in operating expenses and Capex costs were still generally running ahead of rental growth.
• Insurance premiums, tax re-assessments, and labor costs put upwards pressure on operating expenses.
• Multifamily property transaction volumes remained subdued compared to pre-Fed rates takeoff.
• Above average new apartment supply nationally hampered leasing activity.
• Although the Federal Reserve cut its benchmark interest rate one percentage point down from its peak, the yield on the 10-year Treasury ended the year approximately 0.60% higher than it started. Long-term borrowing costs remain elevated for real estate purchasers.

As we look ahead to 2025, we expect a rebound in leasing activity which will be primarily driven by:

• Robust US economic growth according to Goldman Sachs forecasts.
• The gap in affordability between renting and homeownership, which remains near all-time highs.
• A new administration intent on renewing tax adjustments originally made in the 2017 Tax Cuts and Jobs Act that are broadly favorable ot the real estate industry.
• A steep decline in new construction deliveries in 2025 and a further reduction in 2026 will significantly reduce new housing supply.

This increase in demand paired with a reduction in supply is expected to lead to a fall in national multifamily vacancy rates and rents in 2025 are forecast to grow at a national average rate of 2.6% according to CBRE.

Overall, stubbornly elevated borrowing costs and operating expenses will likely be the biggest headwinds, but falling vacancy rates, economic growth, and an expected pickup in property transaction volumes make our outlook for multifamily real estate in the Southeast for 2025 cautiously optimistic of the year ahead.

About Ballast Rock Group

Ballast Rock Group is an integrated investment management company specializing in delivering risk-adjusted returns, accurate, and timely advice, high quality frequent reporting, and direct access to management. Ballast Rock Group operates Ballast Rock Asset Management, Ballast Rock Private Wealth, and Ballast Rock Capital. Ballast Rock Asset Management comprises Ballast Rock Real Estate, which includes the firm’s Sunbelt multifamily real estate funds, and Ballast Rock Ventures, comprising venture capital and private equity teams. Ballast Rock Private Wealth is a registered investment advisor, with a focus on alternative strategies. Ballast Rock Capital is a FINRA-registered broker-dealer. Ballast Rock is committed to being a driver of positive change. The diversity of our team members brings valuable new perspectives to our industry for the benefit of our stakeholders and the broader community.