CRE Mid-Year 2025: Multifamily Rent Growth Returns

This article offers a mid-year look at the commercial real estate (CRE) market in 2025.

“Follow the smart money”^1^ has long been an adage for private markets investors — and after a turbulent couple of years for CRE, it became something of a comfort blanket for many.

Many found reassurance in watching Blackstone, the world’s largest alternative asset manager,^2^ double down on real estate. The firm increased its year-over-year allocations by 2.5x in 2024.^3^ That steady institutional backing was a rare bright spot in an otherwise rocky post-pandemic stretch.

Fortunately, entering the second half of 2025, there’s more for investors to smile about than [▶️ YouTube Video: JzhYGD-6nl4]. CRE investment volume and lending activity rose 14% and 13%, respectively, in the first quarter. ^4^ Prices edged higher.^5^ And 70 percent of commercial real estate investors surveyed by CBRE say they’re allocating more to the category this year than they did in 2024.^6^

All of this reinforced the view that the bottom may be behind us, and that 2025 might be a transitional year. This piece digs into some of the dynamics shaping that perspective — starting with multifamily, and moving across the rest of the market.

CRE’s Rise and Stall

The 2019–2021 vintages don’t need a full rehash, but a quick refresher helps frame today’s market.

Global CRE investment hit a record $1.3 trillion in 2021, driven by elevated household savings, historically low interest rates, and high demand for multifamily housing.^7^ It was considered an exceptionally favorable environment — followed by a punishing one.

By 2022, markets were reeling from the highest inflation and fastest rate hikes in decades, and CRE was among the hardest-hit sectors.^8^ Over the next two years, projects launched at the market’s peak kept coming online, but into a very different world: higher required yields, higher borrowing costs, and a more cautious investor base.^9^

A Cautious Return to Activity

After two years of dislocation, the market started to stabilize in 2024. Prices first began to level off — and deals started to trade — in markets with steady demand and limited exposure to the 2020-2024 supply boom.^10^ The Fed cut rates in September, November, and December, and some money began flowing back to the sector.^11^

Entering 2025, CRE optimism was at a five-year high. Many investors saw it as the tail end of a discount window — a final chance to acquire assets at a substantial discount to previous market highs and well below replacement cost, just as demand firmed up and pricing fundamentals turned a corner.^12^ Much of that optimism traced back to one factor: limited new supply.

Why Supply is Now the Story

In 2022, a historically large supply wave collided with the Fed’s fastest rate-hiking cycle in decades. As a result, many new assets hit the market amid soft demand and tighter underwriting.^13^

Developers who expected to lease up quickly or exit at strong valuations instead faced sluggish absorption, refinancing hurdles, and downward pressure on pricing. In sectors like multifamily, rent growth even turned negative.^14^

CRE net deliveries peaked in 2023; graphic courtesy of FS Investments.

Multifamily rent growth turns negative for consecutive quarters; graphic courtesy of CRE Daily.

Today, the market is still working through that supply, but with few new projects in the pipeline. That’s created a dynamic where excess inventory is being absorbed without more on the way, especially in multifamily.^15^ In many metro areas, apartment occupancy rates are finally back near historical norms.

National occupancy now exceeds 94 percent, a level that typically marks the start of renewed rent growth. Most major metros, including those where multifamily assets have recently struggled, are seeing prices tick up. In May, Denver, San Francisco, Dallas, and Austin all posted positive rent growth. Nationally, average multifamily rent rose by $6 from April to May.^16^

The top-10 markets for year-over-year rent growth; graphic courtesy of Yardi Matrix.^17^

Valuations are starting to recover as well. With fewer new assets entering the market, income growth picking up, and cap rates stabilizing, pricing pressure has begun to ease. Not everywhere, but in select pockets — notably small multifamily, where valuations turned upward in late 2024 and originations rose 5%.^18,19^

Taken together, these dynamics have rekindled some investor enthusiasm — including among some institutional buyers, who are once again snapping up apartment units across the country.^20^ The next question is whether the same momentum is showing up in other parts of the market.

Let’s take a closer look at CRE in 2025, asset by asset, to understand the shape of the recovery.

Retail: Outperforming Expectations

Retail has quietly become one of the most enduring corners of the CRE market, buoyed by essential services, disciplined development, and a decade-long pullback in new supply.

Neighborhood retail continues to outperform, with vacancy rates near historic lows (5.6%) and average asking rents rising at their fastest pace in 15 years.^21^ Essential service tenants — from discount grocers to wellness clinics — are driving demand, and most vacated space is being re-leased within 8 months. Retail investment volume reached $9.8 billion in Q1 2025, up 13% year over year.^22^ Quick‑service restaurants, health, and wellness tenants are driving a growing share of new neighborhood retail leases, reflecting a shift toward necessity- and experience-based offerings.^23^

Importantly, this asset class wasn’t overbuilt during the 2020-2022 supply boom — or the years leading up to it — potentially positioning it well for continued high occupancy and rent growth.^24,25^

Office: Stabilizing at the Top

The office sector remains divided. Some assets are seeing strong interest, while lower-tier properties continue to struggle.^26^

The overall U.S. office availability rate stood at 23.2% at the end of Q2, marking a fourth straight quarterly decline.^27^ Conversions and demolitions are accelerating, especially for outdated properties, shrinking overall office supply.^28^ With hybrid policies tightening at large employers like Amazon and JPMorgan, some additional demand could return. Vacancy is expected to peak near 19% before any full recovery.^29^

Industrial: Growth Cools but Tailwinds Persist

Industrial demand is moderating after years of record growth, but the fundamentals generally remain sound — especially for specialized and logistics-focused assets.

Vacancy rose to 8.8% in April, and annual rent growth has slowed to 2.8%, the lowest since 2012.^30,31^ New construction is sharply down — completions in 2025 are expected to fall 50% compared to 2024.^32^ Still, long-term demand drivers remain in place. E-commerce is forecast to account for 25% of new leases by year-end, and tenants continue to prioritize proximity to major logistics hubs. Specialized segments like cold storage, data centers, and EV production facilities are also attracting interest, especially as AI accelerates reshoring and supply chain investment.^33^

The first half of 2025 offered the clearest signs yet that commercial real estate may regain its footing. Multifamily has shown some of the most compelling recovery signals — with rent growth returning, valuations starting to recover, and strong institutional interest driven by limited new supply and relatively stable occupancy. Elsewhere, the rebound has been more uneven.

As many investors view 2025 as the tail end of a discount window — and a key transition year for CRE — the second half may bring more active deal flow and continued capital inflows across the market. The smart money keeps making headlines, whether it’s Brookfield acquiring an $845 million CRE portfolio or Blackstone doubling down on its real estate offensive.^34,35^ The question now is when, and how many, other investors will follow.

That said, as the market continues to evolve, it’s worth remembering that a full and fast recovery isn’t guaranteed. Challenges remain for investors, including elevated interest rates and uneven demand across asset classes. While the outlook appears to be improving, a selective, thoughtful approach remains important at all times.

For more insights from Crowd Street, check out our other articles.