Easing rents in the Sunbelt could boost migration to the region, leading to positive net absorption and reduce vacancy in the multifamily markets there, according to Marcus & Millichap’s 2025 national investment forecast.
The report found two-thirds of the 21 major metros in the region had an average effective rent below the national median of $1,830 a month, yielding a useful cost-of-living advantage. “All but six are projected to register vacancy compression ranging from 10 to 50 basis points this year,” it noted.
Indeed, over the next five years people moving to the major Sunbelt metros outside of California could drive multifamily vacancy rates down to or below historic averages, especially because fewer apartments are being built, the report predicted. “Upward vacancy momentum in the multifamily sector may have crested,” it noted. Phoenix and Las Vegas are expected to lead the region in growth, followed by Dallas-Fort Worth, Houston, Orlando, Atlanta, Austin and Tampa-St. Petersburg. All those markets entered 2025 with vacancy rates 70-200 basis points above their long-term average, except for Houston.
However, Los Angeles, Orange and San Diego are likely to experience continued out-migration over the next five years, while still remaining among the Sunbelt’s least vacant markets. “Unexpected trends could also arise to shift these or other migration patterns from the current projections,” the report noted. While the report did not address this, it is possible that outmigration from the Los Angeles area could intensify because of the disastrous wildfires that destroyed hundreds of homes and apartment buildings.
The multifamily market will also be affected by the slowdown in new deliveries in 2025, though excess supply will remain in some areas. This could be relieved by growing populations and the propensity of newcomers to rent in cities like Dallas-Fort Worth, Houston and Austin which are leaders in employment growth. In other cities, like Phoenix, Charlotte, and Las Vegas, more new apartment inflows than last year appear justified by household growth. However, new deliveries have declined in Miami, Fort Lauderdale, Orlando and West Palm Beach – permitting strong rent growth.
Some signs of declining permit issuances are having some impact. Chicago is expected to see the lowest growth in new supply among major markets, while New York City is also in the mix. Moderate apartment inventory increases could benefit rental properties in Orange County and Los Angeles because home purchases are out of the question. On the other hand, Midwest metros like Pittsburgh, Detroit, St. Louis and Cleveland, which have the nation’s lowest median home prices and minimal household growth, have also experienced little growth in new apartment inventory.