Q2 2025 Real Estate Outlook: Multifamily, Capital Markets & Evolving Opportunities
The second quarter of 2025 has continued to test the real estate market’s resilience. With President Donald Trump past his first 100 days back in the Oval Office, corporate optimism remains high – fueled by deregulation and promised tax incentives – but it’s intermingled with volatility. The administration’s aggressive trade moves (tariffs on steel, aluminum, Chinese imports, and more) are rippling through construction and manufacturing. Developers and contractors face higher input costs as tariffs drive up prices for key materials like steel and lumber (construction.com). Many U.S. companies even drew down credit lines and stockpiled inventory ahead of the April 2025 “Liberation Day” tariff hikes, but the back-and-forth trade announcements since then have unsettled markets and dampened confidence for the rest of the year (greenwich.com). Global supply chains are being restructured in real time, and global capital flows are shifting: for example, China has quietly cut its U.S. Treasury holdings to the lowest level in over a decade (sterlingassetgroup.com,) underscoring broader geopolitical realignments that could eventually influence U.S. interest rates.
Meanwhile, Wall Street may be cheering short-term gains, but commercial real estate (CRE) investors are far more cautious. Elevated interest rates and an impending “wall” of debt maturities have put the industry in a defensive stance. Below, we delve into Q2’s major themes in the capital markets and multifamily acquisitions, with a brief look at the office (Manhattan) and industrial sectors, and discuss what lies ahead as we approach mid-year 2025.
Capital Markets: The Maturity Pause and Selective Liquidity
If Q1 was about kicking the can, Q2 has been about holding one’s breath. Lenders and borrowers continue their delicate dance of extending and pretending. Many loans that were set to mature in 2024/25 are getting quiet extensions into 2026, effectively buying time rather than forcing a reckoning now. This has created a “maturity pause” – not a true reset of values, but a temporary reprieve. By some estimates, over $3 trillion in CRE debt is now coming due in the next three years (peaking around 2026–27) after these extensions (brookfield.com). Make no mistake: this isn’t a solution, it’s a stay of execution. The hope is that by 2026, interest rates will have stabilized (or fallen) and values will have adjusted enough to refinance more cleanly. But for now, a logjam is forming down the road.
At the same time, capital remains selective and tight. Traditional banks, facing both regulatory pressure and lingering exposure to shaky asset classes (notably office and retail), have largely pulled back on new CRE lending. They are especially cautious on loans tied to offices – even high-profile markets like Manhattan – which has led them to favor only their best existing clients and deals with ultra-conservative metrics. Loan-to-value ratios (LTVs) are compressed and underwriting standards are stricter than we’ve seen in years. In many cases, proceeds are being limited such that debt coverage ratios pencil out at today’s higher rates, even if that means borrowers bring more equity. This conservative stance is partly why transaction volumes have been muted – leverage simply isn’t as available or as cheap as before.
However, where banks retreat, alternative lenders are stepping in. Private credit funds, debt funds, mortgage REITs, and other non-bank financiers sense opportunity in this environment. They can charge higher interest rates (often achieving yields in the low teens) and still attract borrowers who need flexibility. For investors in real estate credit, today’s climate is actually attractive: interest rates are double their five-year average and property values have fallen enough to give new lenders a better collateral cushion (brookfield.com, brookfield.com). In fact, multifamily asset values are down about 20% from their 2022 peak due to rising cap rates (callan.com), meaning new loans originated now are against lower (derisked) valuations. Higher yields + lower entry basis = compelling risk-adjusted returns for private lenders (brookfield.com). We’re seeing robust fundraising and deployment in this space, as debt funds fill the gap for acquisitions, refinancings, and rescue capital deals that banks won’t touch. Even banks themselves are indirectly participating – many are offering credit lines to these private lenders (through “loan-on-loan” facilities) at favorable terms (brookfield.com), rather than lending directly to real estate owners. This gives non-bank lenders relatively low cost of capital to go make higher-rate loans, mitigating some of the financing crunch in creative ways.
Key Q2 capital market themes:
Extended maturities, deferred reckoning: Lenders are kicking the can on 2025 debt maturities, often granting 12- to 24-month extensions. This widespread practice has pushed much of the looming distress into 2026. It’s a double-edged sword: on one hand, it prevents fire sales today; on the other, it concentrates a huge volume of refinancings a couple of years out (brookfield.com). The Mortgage Bankers Association estimates around $213 billion of multifamily loans alone come due in 2025 – a number that swells once you include loans extended from 2024 (globest.com). Many of those now have a 2026 expiration. The industry is essentially praying for a more favorable rate environment by then.
Banks on the sidelines, caution reigns: Banks remain highly cautious on CRE. Recent regional bank turmoil and regulatory scrutiny have made them ultra-selective. They’re largely focusing on their existing relationships and the least risky deals (globest.com). Exposure to office loans (still facing high vacancy and falling values) is a particular concern, causing some banks to caps their CRE lending or increase reserves. For borrowers, this means getting a new bank loan is challenging unless your deal is pristine – think low leverage, strong debt service coverage, and A-tier sponsorship. Even then, pricing is expensive. This bank pullback has been most acute for construction and value-add projects, which are seen as riskier. In short, traditional real estate credit is available only on the most vanilla terms.
Private credit filling the gap: Non-bank lenders (private debt funds, mortgage REITs, insurance companies, and mezzanine providers) are actively filling the void. They are stepping up to fund deals and refinancings that in previous years would’ve gone to banks. In early 2025, issuance of securitized CRE debt (like CMBS and CLOs) also ticked up, as these platforms offer more flexibility (e.g. five-year fixed-rate loans with an expectation of refinance in a few years) that borrowers find attractive (globest.com). A significant share of loans maturing now were originally made by banks (roughly half, by some measures) (brookfield.com), but banks’ retreat means private lenders must take on a bigger refinancing role. We’re seeing debt funds not only originate loans but also buy loan portfolios from banks looking to reduce exposure (globest.com). Of course, this capital is pricier – double the interest rate in some cases – but for many borrowers it’s the only game in town. The upside: these alternative lenders often can be more flexible on structure (interest-only periods, earn-outs, mezz pieces, etc.), which can help meet borrowers halfway.
Pricing reset and cap rate repricing: The cost of capital remains elevated, and asset pricing is adjusting accordingly. Cap rates (property yields) have expanded significantly from their 2021 historic lows. For example, U.S. apartment cap rates averaged around 4.1% in 2021 at the peak of the boom, but climbed to roughly 5.2% by late 2024 (callan.com). This upward move of ~100 basis points (and counting) translates to a 20%+ drop in multifamily property values on average from the peak (callan.com). Similar cap rate decompression is evident in other sectors: even previously white-hot industrial assets have seen yields rise, and office cap rates (for the few trades happening) are through the roof due to pessimistic outlooks. Tertiary markets and secondary locations have felt the brunt of this repricing. The good news? Many industry forecasters think we are near the peak in cap rates. If the Federal Reserve pauses rate hikes (or signals cuts in 2025), cap rates could stabilize. In fact, CBRE’s baseline outlook calls for a small decline (≈17 bps) in multifamily cap rates in 2025 as compared to 2024 peaks (callan.com). Some analysts go further, predicting cap rates might gradually compress again by late 2025 if debt costs ease (blog.firstam.com). But that’s a forecast – in the here and now of Q2, buyers and sellers are still in price discovery mode. Bids are often coming in lower than sellers will accept, so deal volume stays low. Only distress or capitulation by sellers will force more price discovery in the near term.
Green shoots in deal volume: Transaction activity remains subdued relative to the frenzy of 2021, but it’s no longer at a standstill. In fact, Q1 2025 saw an uptick in sales volume for multifamily assets – roughly $28.8–30 billion in apartment property sales, which is about a 30–35% increase from the very slow Q1 of 2024 (cbre.comnmrk.com). While that is still well below 2021 levels (and ~25% below Q1 2023) (avisonyoung.us), it shows that buyers and sellers are starting to find some equilibrium on pricing. Notably, well-capitalized private equity players and certain REITs have been quietly accumulating high-quality assets at discounted prices – especially when they can assume existing low-rate debt or structure creative financing. These “whisper transactions” often happen off-market or via limited bidding processes. Many sellers remain on the sidelines (unless forced) because they don’t like today’s pricing, but we’re seeing more “motivated sellers” test the waters as the year progresses. As one example, special servicers report an uptick in off-market offerings of troubled assets at 10–15% discounts to replacement cost for those positioned to move quickly (bluelake-capital.com). Dry powder is also abundant – real estate funds raised in recent years still have capital to deploy, and they’re waiting for the right deals. All told, the market is slowly thawing: when a property does come up for sale at a realistic price, there is capital ready to pounce. But broad-based liquidity won’t return until interest rates notably decline or sellers reset expectations further.
Multifamily Acquisitions: Strategic and Disciplined Plays
In the multifamily sector, long-term fundamentals remain attractive, but Q2 investors are playing the long game and picking their spots very carefully. Gone are the days of exuberant, growth-at-all-costs buying. Today’s acquisitions strategy can be summed up in one word: discipline. With debt expensive and future rent growth modest, smart investors are underwriting conservatively and focusing on operational upside, not just market appreciation.
Earlier in the cycle (2021–2022), we saw a lot of opportunistic, aggressive acquisitions – syndicators and funds were paying top-dollar, often betting on rapid rent increases and cheap refinance conditions. That approach has flipped. Now the shift is from “buy everything you can” to “selectively buy what truly makes sense.” Q1’s theme of moving from opportunistic to strategic has only intensified in Q2. Institutions and experienced operators have no interest in catching falling knives. In many cases, they’d rather wait for distressed opportunities to emerge than overpay in the current environment. This is especially true in certain Sun Belt markets where a glut of new apartments and overzealous underwriting during the boom have some deals on shaky ground (we’re looking at you, over-leveraged Class A deals in Austin, Phoenix, etc.). Those players are waiting in the wings for potential discounts if distressed sales or note sales hit the market in late 2025.
That said, there are acquisitions happening – but they’re targeted. The bias is toward stable, cash-flowing assets that can weather economic bumps. We see buyers favoring well-located, “core-plus” multifamily properties: these are assets in strong markets or neighborhoods, with solid occupancy and yield, perhaps a little older or slightly under-managed such that there’s some upside through light improvements or better operations. The appeal here is twofold: (1) reliable current income (which is king when debt costs 6%+ and one can’t count on cap rate compression), and (2) a hedge against the construction slowdown – since new development is curtailed (thanks to tariffs and labor shortages), existing assets in good locations face less future competition. In fact, with construction costs soaring and regulatory hurdles in many cities, buying an existing property at or below replacement cost is an attractive proposition. It can be cheaper than building new, and you have tenants day one.
Another hallmark of Q2 multifamily deals is creative deal structuring. Buyers and sellers are finding ways to bridge the valuation gap and make transactions pencil out despite high interest rates. One common approach is seller financing or seller-held paper – the seller agrees to loan back a portion of the purchase price to the buyer at a below-market rate for a few years. This eases the buyer’s burden of taking on an expensive bank loan for the full amount and can justify a slightly higher purchase price than pure cash financing would allow. We’re also seeing preferred equity stakes and earn-outs being used: for example, a buyer might pay, say, 90% of the price now and the remaining 10% is structured as an earn-out payable if the property hits certain performance targets post-closing. These techniques effectively share some risk between buyer and seller, and they acknowledge that nobody has a crystal ball on values two years out. In short, multifamily investors are getting transactionally creative to get deals done.
Lastly, many multifamily owners are pivoting from rapid expansion to optimizing what they have. Asset management has taken center stage. Rather than chasing the next acquisition, sponsors are doubling down on extracting value from their existing portfolios. That means focusing on operations: reducing expenses (even renegotiating insurance and property tax valuations where possible), pushing ancillary income, and selectively investing in value-add renovations that can drive rent growth. The mindset is “protect and increase NOI” so that if and when cap rates do stabilize or compress, these assets are poised to rebound in value. This is a shift from the buy-&-flip mentality to a buy-&-hold (and improve) mentality. It’s all about yield protection right now.
Investors in Q2 are:
Focusing on quality and location: Multifamily buyers are cherry-picking well-located assets with durable demand. Think properties in strong job-growth metros, near transportation, or in desirable school districts – locations that will hold value even if the economy softens. A stabilized asset in a prime location offers peace of mind: high likelihood of staying leased and some pricing power on rents. Class A properties in core markets still get attention (especially if pricing has adjusted), but there’s also keen interest in Class B communities in good areas, which offer higher yields and room for improvement. The mantra is “buy good real estate, at the right basis.” Investors would rather pay a 5.0% cap for a rock-solid asset in, say, a Dallas suburb than a 5.0% cap for a riskier asset in a market with shaky demand. Quality is back in style.
Bridging valuation gaps with creative financing: As noted, deal-making in 2025 requires flexibility. Buyers and sellers are increasingly negotiating creative structures to meet in the middle on price. This includes seller financing (the seller acts as the lender for part of the price), preferred equity inserts (an investor provides a mezzanine-like equity slice to reduce the debt load), and price adjustments contingent on future performance. These tools can make a marginal deal workable. For instance, a seller might accept interest-only payments on a seller note at a modest rate, which helps the buyer’s cash flow in the near term. Such arrangements recognize the current high-rate environment as temporary. They “buy down” the effective cost for the buyer until refinancing hopefully becomes easier. We’ve also seen joint venture structures where the seller keeps an ownership stake, effectively rolling over equity, to avoid selling at a bottom. All of this creativity is about one thing: getting deals done without relying solely on traditional financing. In a world of 6-7% bank debt, these techniques are often the only way to hit return targets. (As a side note, preferred equity is in high demand – it’s a way for investors to get mid-teen returns and sits between senior debt and common equity in priority. Many private equity real estate shops have funds dedicated to pref equity to capitalize on this need.)
Prioritizing asset management and NOI growth: A lot of multifamily owners have shifted their mindset from “acquire and expand” to “optimize and hold.” Rather than deploying capital to buy more properties, they’re deploying capital into their properties – things like energy-efficient upgrades to cut utility costs, amenity improvements to justify rent bumps, or tech investments to streamline property management. The goal: drive net operating income (NOI) in a no-or-low growth environment. With year-over-year rent growth nationally only around 0.9% in Q1 (cbre.com) (after being effectively flat for much of 2024), raising rents is not as easy as it was a couple years ago. So operators are looking at other ways to improve the bottom line. Every dollar of NOI is extremely valuable when cap rates are higher – it has a magnified effect on value now. We see sponsors stress-testing their budgets, contesting tax assessments, shopping insurance aggressively (no small feat, as insurance costs are soaring 45%+ year-over-year in some cases) (minneapolisfed.org), and making sure they have the right property management in place to maximize occupancy. The organizations that hone their operations now will be the big winners when the market eventually recovers. It’s a back-to-basics, blocking-and-tackling approach.
Seeking value-add in the right places (Class B/C opportunities): While Class A trophy multifamily gets a lot of attention, some of the savvier investors are quietly hunting for high-yield deals in the Class B and C space. These are the 1980s-1990s vintage apartment complexes, often in secondary markets or blue-collar suburbs, where rents are below market due to light upgrades needed or mismanagement. The appeal here is that cap rates on Class B/C assets are higher, sometimes in the 6%–7% range or more, providing better going-in yield. If you have patient capital, you can invest in renovations (new appliances, flooring, paint, maybe adding a dog park or improved laundry facilities) to justify rent increases and materially lift the NOI. Additionally, workforce housing (affordable by necessity) tends to have very stable occupancy – there’s structural demand as homeownership remains out of reach for many. We are indeed seeing increased interest in these repositioning plays (construction.com), as noted in Q1. However, caution is warranted: the most aggressive buyers of B/C properties in 2021 (often highly leveraged syndicators) are the ones under the greatest financial stress now. Some have already defaulted or handed back keys when floating-rate debt doubled their interest payments. So any investor pursuing value-add must do so with conservative leverage and a clear business plan. But if done right, Class B/C repositioning deals can deliver excellent returns and also serve an important need by preserving attainable housing. It’s worth noting that renter demand in the “affordable” segment is very strong – for instance, markets in upstate New York and the Midwest with less new supply are actually seeing some of the highest rent growth in the nation, north of 4% annually. That speaks to the opportunity in well-bought Class B/C assets.
Office & Industrial: A Tale of Two Sectors (and a Manhattan Surprise)
Office – especially older office – remains the problem child of commercial real estate in 2025. Lenders, investors, and city tax coffers are all nervous about what the secular shift in work-from-home and high interest rates means for office values. This caution in office lending spills over and impacts the whole CRE capital market (as banks with big office loan exposure are generally de-risking across their portfolios). However, not all office news is bad. In a surprising turn, Manhattan’s office market has shown flickers of life. In fact, New York City has become a bit of an outlier in Q1/Q2: Manhattan office vacancy fell to 16.5% in March 2025, down 110 basis points from a year earlier (commercialsearch.com). This was one of the sharpest year-over-year vacancy improvements among major U.S. cities and brings Manhattan’s vacancy well below the national average (~19.9%) (commercialsearch.com). What’s driving this? A combination of return-to-office momentum and flight to quality. Major employers in finance, law, and tech are reaffirming their need for prime office space. For example, Amazon signed a 15-year, 330,000 sq. ft. lease at 10 Bryant Park, their fourth big NYC lease in recent months (commercialsearch.com). Deloitte is anchoring a new 1.1 million sq. ft. tower at Hudson Yards with an 800k sq. ft. commitment (commercialsearch.com) – potentially the largest ground-up U.S. office development launched since the pandemic. These kinds of deals signal that top-tier, “trophy” offices in prime locations are still in demand (even as Class B offices struggle). Foot traffic data backs this up: Manhattan office attendance is now less than 12% below 2019 levels – the best recovery of any major market (far above the ~46% deficit still seen nationally) (commercialsearch.com). Investors have noticed; office investment sales in NYC ticked up – Manhattan saw about $2 billion of office properties trade in Q1, roughly double the volume of a year prior (commercialsearch.com). These trades are often at heavy discounts (30–40% off pre-pandemic values for older buildings), but some deep-pocketed players (including private families and opportunistic funds) are betting on a NYC office rebound.
That said, let’s be clear: outside of a few marquee markets, the office sector’s pain is not over. In most cities, office vacancies are at or near record highs and still rising. The U.S. average vacancy hit ~20% in Q1 2025 (moodyscre.com) – unprecedented territory. Many 1970s-80s vintage buildings in downtown cores are half-empty and ill-suited to current tenant preferences. Distress is mounting – as of January, the CMBS office loan delinquency was climbing, and more than $116 billion in CRE distress is now identified, much of it office-related (credaily.com). Even in Manhattan, the “average” office building faces headwinds: asking rents have slid (down ~3% year-over-year in NYC) (commercialsearch.com) and landlords are conceding generous TI packages to lure tenants. The bifurcation is key: the best buildings are stabilizing, while commodity office buildings are fighting an uphill battle. We expect to see more talk (and action) on office conversions (turning offices into apartments or labs) in urban centers as a partial solution. New York, for instance, is actively looking at rezoning and tax incentives to convert obsolete offices to residential, which could gradually help reduce oversupply. But those projects are complex and capital-intensive, and will play out over years. For now, the office sector remains the primary drag on commercial real estate sentiment and bank portfolios.
Industrial, on the other hand, continues to be a standout performer, albeit cooling from a red-hot sprint to a more sustainable jog. The industrial market (warehouses, logistics facilities, manufacturing space) experienced an incredible run in 2020–2022 thanks to the e-commerce boom and supply chain reconfiguration. By 2023–2024, record amounts of new warehouse space were under construction to meet that demand. Now, in Q2 2025, we’re digesting that supply. National industrial vacancy has ticked up to about 8.8% (commercialsearch.com), which is more than double the sub-4% vacancy rates seen pre-pandemic. This rise in vacancy is directly linked to the record new deliveries; as one report noted, the vacancy rate is up 30 bps just from March to April as new warehouses come online (commercialsearch.com). Markets that were extremely tight (Southern California’s Inland Empire, for example) have loosened a bit because of new supply. However, it’s important to emphasize: an 8–9% vacancy is still quite landlord-favorable in historical context (and much tighter than office or retail). And the construction pipeline is now slowing – only ~1.7% of industrial inventory is under construction nationwide (around 359 million sq. ft.) (commercialsearch.com), and developers have pulled back on speculative projects. If this trend holds, vacancies should level off later this year (commercialsearch.com) instead of continuing to climb.
Crucially, industrial demand drivers remain intact. Businesses have adopted structurally higher inventory levels (estimated ~30% above pre-Covid norms) to avoid the supply chain snafus of 2021 (brookfield.com). And even though e-commerce growth has normalized, it’s still growth – requiring more distribution space. In Q2 we’re seeing rent growth persist in industrial. In-place rents nationally increased about 6.7% year-over-year (commercialsearch.com), and some top logistics hubs (New Jersey, South Florida, etc.) saw double-digit rent growth as vacancy remains especially low in those land-constrained markets (commercialsearch.com). One notable stat: New Jersey’s industrial rents are up ~10.5% year-over-year, leading the nation (commercialsearch.com). Investors remain bullish on industrial’s long-term story – so much so that investment volumes are relatively healthy. Through the first four months of 2025, about $15.5 billion of industrial property has traded in the U.S. (commercialsearch.com). Q1 alone was ~$11.7B (commercialsearch.com), which, while down from the peak frenzy, is not far off historical averages. Capital is particularly targeting modern, well-located warehouses in key distribution corridors. For example, coastal markets like Los Angeles and Northern New Jersey are commanding top dollar (trading at $280–$300 per sq. ft. on average) (commercialsearch.com) – a reflection of both high replacement costs and fierce tenant demand in those regions. Even in interior markets, big-box logistics facilities near major interstates (Dallas-Fort Worth, Atlanta, etc.) are still seeing active trading, although at more moderate pricing (e.g. ~$95 per sq. ft. in Dallas) (commercialsearch.com). The industrial sector’s fundamentals – relatively limited new supply in 2025 and steady demand – suggest it will remain a favored asset class for investors and lenders. It’s not the double-digit rent growth rocketship of 2021, but few sectors offer industrial’s combination of stable cash flow and growth potential. We anticipate cap rates in industrial to stay comparatively low (high-4% to low-5% range for prime assets) and the sector to lead the pack in any CRE recovery. Simply put, goods still need to be stored and shipped, and that bodes well for owners of well-positioned warehouses.
Housing Market Outlook: Caution with a Side of Opportunity
As we head deeper into 2025, the broader housing market (encompassing both for-sale homes and rental housing) sits at an interesting inflection point. On one hand, housing supply is still constrained in many regions – a legacy of underbuilding in the 2010s and supply-chain snarls in early 2020s. The U.S. remains undersupplied by millions of housing units; estimates range from a 1.2 million unit shortfall in the near term (construction.com) to over 4 million homes needed to meet long-term demand (brookfield.com). This supply-demand imbalance provides a floor under home prices and supports rental occupancy. On the other hand, affordability challenges are mounting: high mortgage rates (hovering ~6–7%)construction.com, expensive insurance and taxes, and, in some markets, new regulatory costs are chipping away at what homeowners and investors can afford. For instance, property insurance premiums for multifamily have doubled since 2021 on average, (minneapolisfed.org) becoming a major expense line for landlords (and indirectly for renters). Property taxes, which often lag market value surges, have been catching up – many Sun Belt markets that saw home values jump 30%+ in the boom are now seeing hefty tax assessments (even as values level off). Additionally, local regulations – like stricter rent control measures in some cities, or costly retrofit mandates for older buildings (seismic, energy, etc.) – are adding operating costs. All these factors pressure NOI (net operating income) for rentals and reduce what buyers can pay for properties while still achieving target returns.
Given these crosscurrents, we expect the housing market in Q3 2025 to be characterized by price discovery and selective activity. In the for-sale market, higher mortgage rates have cooled the frenzy; home prices nationally have flattened out and even dipped in some overheated areas. But we haven’t seen a dramatic crash because inventory of homes for sale is very tight – many potential sellers are locked into 3% mortgages and simply unwilling to sell and buy a new house at a 7% rate. This rate-lock effect keeps resale listings low. As a result, buyers who are in the market are gaining a bit more leverage: with homes sitting longer, they can negotiate price reductions or seller concessions (closing cost buydowns, etc.). Time on market for homes has extended, approaching 2018–2019 norms rather than the lightning-fast 2021 pace. We’re essentially returning to a balanced housing market in many locales. It’s worth noting that new home builders have benefited somewhat – with little competition from resale inventory, builders have been able to keep selling homes (often using financing incentives to attract buyers). But even builder confidence is cautious, given uncertain costs and the difficulty of pushing prices much higher.
In the rental market, as covered earlier, fundamentals are improving from a soft patch in 2023. Household formation is rebounding, especially among Millennials and older Gen Z. After a lull during the pandemic (when many young adults moved back home or doubled up), we’re now seeing more young people strike out on their own. In fact, the key 25–34 year-old renter cohort gained about 1.8 million new households from 2022 to 2024, (bluelake-capital.com) a significant demand driver. Additionally, very high home prices and interest rates are keeping people in the renter pool longer – the rent vs. buy calculus still favors renting in many cities. Rental demand outstripping new supply is evident in many markets: in the top 20 metros, absorption of apartments over the past year exceeded new completions (3.4% of stock absorbed vs. 2.6% delivered) (bluelake-capital.com), bringing the national apartment vacancy down to 4.8% (cbre.com). This is a positive sign that the worst of the rent softness is likely behind us. We expect rent growth to remain modest but positive in 2025 – forecasts in the 1%–3% range nationally – which, after the rollercoaster of +15% in 2021 and near 0% in 2023, is a relatively healthy normalization.
Expect to see:
More price discovery & motivated sellers: As 2025 progresses, we anticipate more owners testing the market, both in residential and multifamily. Some will be motivated sellers – e.g. a landlord facing a loan maturity who can’t refinance at a palatable rate might opt to sell, or a homeowner relocating for a job who can’t wait for rates to drop. These sellers will provide data points on pricing. Buyers, armed with higher borrowing costs, will demand discounts, and some sellers will meet that ask. Each closed deal in this environment resets comps and helps narrow the bid-ask spread. By Q3/Q4, we should have a better sense of where the true market clearing prices are for various asset classes. This process is already underway quietly and will accelerate (especially if there’s any credit event or if the Fed signals rate cuts, which could bring more buyers out). Price discovery is the precursor to an eventual market recovery, so it’s a healthy (if at times painful) process to watch.
Build-to-Rent (BTR) momentum: One of the hottest trends in housing investment continues to be build-to-rent communities. These are typically subdivisions of single-family homes (or townhomes) that are built expressly to be rented, not sold. In a world where many families cannot afford a mortgage at current rates, but still want the space and lifestyle of a single-family home, BTR hits a sweet spot. Institutions have poured capital into BTR, and it’s still growing – there are over 64,000 BTR units under construction in the U.S. right now (credaily.com), with Sun Belt markets like Phoenix, Dallas, and Atlanta leading the charge. We expect BTR to gain further traction in Q3 and beyond. For investors, BTR offers the appreciation potential of housing with the cash flow of multifamily, and for tenants it offers a professionally-managed home without the down payment. It’s a win-win niche that’s becoming mainstream. In suburbs where land is available, you’ll see more BTR projects breaking ground (even as traditional multifamily starts pull back). This trend helps alleviate supply shortages in the rental market and provides an alternative for would-be buyers sidelined by high interest rates. In short, BTR is here to stay, and it will be an important piece of the housing puzzle in the coming years.
Household formation supporting rentals: As mentioned, demographic tailwinds are a quiet force underpinning housing demand. The U.S. is in a period where the large millennial cohort (now late-20s to late-30s) is forming households, and Gen Z is entering the rental market behind them. This has contributed to the surge in apartment absorption we saw in Q1 (the highest Q1 net absorption since 2000) (cbre.com). Even if the economy wobbles, people still need a place to live, and many young adults will continue to leave roommates or parents to strike out on their own. Additionally, immigration, which picked up again in 2023–2024, is adding to housing demand at the margins. All this suggests that rental demand will remain fairly solid even if job growth slows. We expect occupancies to stay high and maybe even tighten further in markets with limited new construction. In the single-family arena, household formation translates to more starter-home demand, but with inventory so low, a lot of that demand will spill into rentals or delay household formation (e.g. people staying with parents longer). The housing market is thus likely to remain undersupplied, keeping upward pressure on rents and prices in the long run – a reason investors still favor housing assets.
Longer transaction timelines (and savvy negotiation): The frenzy is gone, and patience is back. Whether it’s a homebuyer or an apartment investor, people can take a bit more time now to evaluate deals and negotiate. We expect average days on market for home listings to remain elevated compared to the 2021 extremes. In commercial deals, due diligence periods have stretched out again; buyers are insisting on thorough inspections, financing contingencies, and sometimes re-trades if something comes up. This is a return to a more normal deal-making environment. “Time on market” being longer is not necessarily a negative – it’s indicative of a healthier equilibrium where neither side has an extreme upper hand. Buyers with access to capital have more leverage, and we anticipate they’ll continue to use it: asking for seller concessions, price reductions, or creative terms as discussed. One upshot is that investors who prepared wisely for this kind of market – those with cash reserves, financing lined up, and solid market knowledge – can capitalize. They can methodically pursue opportunities without the panic of a bidding war. In many respects, 2H 2025 will be a buyer’s market for those who have dry powder and a long-term outlook. Sellers, conversely, will have to adjust to this new normal of more balanced negotiations.
Our Q3 2025 Outlook – What We’re Watching Next
Looking ahead to the next quarter (and the second half of 2025), several key factors will determine how the real estate capital markets and multifamily sector evolve. Our team is keeping a close eye on the following:
Federal Reserve’s tone and interest rate trajectory: The Fed’s actions (or inaction) loom large. Thus far in 2025, the Fed has held rates high to combat inflation, but by Q3 the conversation may shift to when rate cuts come into view. Any clear signal of an upcoming rate reduction could re-price the entire CRE market upward – lowering financing costs and bolstering asset values. Conversely, if the Fed emphasizes a “higher for longer” stance due to tariff-driven inflationary pressures or other factors, it will reinforce the status quo of tight capital. We anticipate more clarity on this in the next few Federal Open Market Committee meetings. Simply put, everyone in real estate will be hanging on the Fed’s words, looking for either relief or resolve in maintaining current rates.
Impact of tariffs and geopolitical risks on costs: The lasting impact of Trump’s tariffs will become more evident as months go on. By Q3, we should see how much tariffs are feeding into construction material prices and broader inflation. If supply chains adapt (e.g. sourcing steel from non-tariff countries) or if there’s a negotiated easing with key partners (there was a temporary U.S.–China tariff suspension in May (kiplinger.com) that bears watching), input costs for development might stabilize. If not, continued high costs could further suppress development activity – which, paradoxically, supports existing asset values by constraining new supply. Geopolitical wildcards (trade negotiations, sanctions, even the ongoing Ukraine conflict affecting commodity prices) all play into this. Clarity on trade policy – or at least an end to constant whiplash – would be very welcome for investors and builders trying to plan ahead.
Pace of distress and resolution: Will the so-called “debt maturity wall” start to crack before 2026? In the next 6–12 months, we expect a gradual uptick in distressed asset sales and loan workouts. Already, special servicing rates and delinquencies in multifamily have inched up from historic lows (multifamily CMBS delinquency hit ~3.2%, and special-servicer workouts are rising) (globest.com). By Q3, we’ll see if lenders (banks and servicers) start to get more aggressive in resolving troubled loans now rather than kicking the can again. Key indicators: watch for more properties transitioning to special servicers or receivership, and check if any high-profile defaults occur when extension agreements expire. We think distress will remain contained (no systemic tsunami yet), but it will increase on the margins, creating pockets of opportunity for note buyers and value-add investors. The big question: do valuations find a floor such that rescue capital can confidently step in? The sooner price discovery happens (through some distressed trades setting benchmarks), the sooner the market can clear and recover. Keep an eye on late-Q3 and Q4; many of those short-term loan extensions will be 6–12 months old by then, and lenders will reassess whether to extend again or enforce remedies.
Institutional capital re-deployment: There is a lot of capital sitting on the sidelines – not just in private equity real estate funds, but also in institutional investor allocations (think pension funds, sovereign wealth funds, etc.) that were underweight real estate in 2023 due to the denominator effect. If the outlook steadies, we could see a surge of capital re-enter the market in late 2025. For example, if the bid-ask spread narrows and it’s perceived that “we’re at or near the bottom,” big players will want to buy before the rebound (nobody wants to miss the trough). Q3 could give clues: Are more deals getting done? Are pricing expectations aligning? We’ll also be watching cross-border capital – a weaker U.S. dollar recently has made U.S. real estate a bit cheaper for foreign investors, and reportedly cross-border multifamily investment was up 12% in 2024 (bluelake-capital.com). Any geopolitical stability or dollar weakness might bring in more overseas buyers for trophy assets or portfolios. Conversely, if uncertainty reigns and performance is still in question, that capital can remain patient. By end of Q3, fundraising trends and transaction data will indicate whether confidence is returning to the market. In short, we’re watching for the early signs of a thaw: higher bidding volume in auctions, less retrading of deals, and maybe even slight compression in loan spreads as competition picks up. Those will tell us the smart money is coming back.
Policy and regulatory shifts: Finally, we’re mindful of any policy changes that could significantly influence CRE. The Trump administration has floated big ideas – for instance, reforming Fannie Mae and Freddie Mac (possibly privatizing or altering their mandates) (globest.com), which could dramatically change multifamily financing if pursued. Tax policy is another area: any changes to 1031 exchanges, capital gains rates, or opportunity zones would impact investor behavior. So far, no major tax law shifts have occurred in 2025, but one can’t rule it out. Additionally, at local levels, initiatives on rent control, zoning, and development incentives are constantly evolving (e.g., some cities are loosening zoning to encourage housing, while others are increasing tenant protections). These micro factors will continue to shape which markets are more investable. We keep our ears to the ground on legislation that can swing supply-demand dynamics or operating costs in key markets. As always, real estate is local, and smart investors will adjust strategy city-by-city as regulations change.
How We Can Help: In this complex landscape, navigating the risks and capitalizing on the opportunities requires experience, data-driven insight, and creative strategy. That’s where we come in. As an acquisitions, capital markets and asset management firm, Sterling Asset Group specializes in helping clients chart a course through volatile markets. We offer:
Strategic Guidance: We work with you to interpret macro trends (like interest rate shifts, tariff impacts, and capital market movements) and translate them into sound investment decisions. Whether it’s refinancing an upcoming loan, deciding when to sell or hold, or identifying which markets offer the best risk-adjusted returns, our team’s seasoned perspective can be your compass.
Disciplined Underwriting & Deal Structuring: In a market where discipline is paramount, we bring rigorous underwriting to every deal. Our analysts dig into the details – from rent rolls to replacement costs – to ensure realistic projections and downside protection. Importantly, we’re adept at creative deal structuring. Seller notes, preferred equity, JV partnerships – we’ve done it all, and we can craft solutions that bridge gaps and make deals work, while safeguarding your interests.
Off-Market Sourcing & Network Access: In a tight market, the best opportunities often aren’t listed openly. Through our extensive industry network of owners, brokers, lenders, and developers, we source off-market and pre-market opportunities that others simply don’t see. We can help you find that undervalued asset or that quiet partnership buyout. And with our trusted capital relationships – spanning banks, debt funds, and equity partners – we can connect you to the right funding sources to execute your strategy, even when traditional channels are challenging.
Asset Management Optimization: Our involvement doesn’t stop at the acquisition. We offer hands-on asset management consulting to help optimize operations, reduce expenses, and implement value-add programs that boost NOI (and ultimately, asset value). From evaluating a green retrofit to re-bidding your insurance coverage, we bring an owner’s mentality and attention to detail that can improve your portfolio’s performance even in a flat market.
Ultimately, we’re not just advisors – we consider ourselves partners in your success. Our mission is to help you navigate the uncertainty of today while positioning you to capitalize on the future. The challenges in the current market are real, but so are the opportunities for those who stay informed and agile. With Sterling Asset Group by your side, you’ll have the clarity and confidence to move forward strategically, no matter what the market throws your way.
Let’s turn today’s market shifts into tomorrow’s successes – together.
Contact for Consultation:
Looking to navigate today’s real estate market with clarity and discipline? Contact us for a private consultation and discover how we help sponsors, operators, and investors evaluate deals, underwrite opportunities, and structure capital in a repriced environment.
Sources: construction.com greenwich.com sterlingassetgroup.com brookfield.com callan.com callan.com cbre.com avisonyoung.us minneapolisfed.org globest.com commercialsearch.com commercialsearch.com commercialsearch.com commercialsearch.com credaily.com bluelake-capital.com bluelake-capital.com
Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. All investing and lending involves risk, and readers should perform their own due diligence or consult with professional advisors before making decisions. The views expressed here are based on market trends and sources as of the date of writing, and future conditions may change