Copyright© 2015 Fannie Mae 1

Multifamily Market Commentary – February 2015

Demand for Multifamily Expected to Stabilize in 2015 

The multifamily sector continued to experience solid demand in 2014, and based on current data, the forecast for 2015 is 

not significantly different despite the big increase in new construction supply underway. Although there is an expectation 

of slowing rent growth and an uptick in vacancy levels, we expect there will be continued demand for multifamily housing

in 2015 based on positive job growth, solid demographic trends, an increasing number of renter household formations,

and rising for-sale home prices. 

The ongoing demand for multifamily rental units remained healthy throughout all of 2014, despite the estimated national 

vacancy rate ticking up to 5.0 percent at the end of the fourth quarter of 2014. More importantly, rent growth appears to 

have been positive despite new additions to existing supply coming online throughout the year. We expect net absorption 

in 2015 to remain positive, although at a lower level than last year. 

Vacancy Levels Expected to Rise Modestly

The national multifamily vacancy trend is expected to remain fairly stable over the forecast despite the influx of new 

completions likely outpacing demand, especially over the next few years. It is expected that the estimated national 

vacancy rate will actually increase to 5.25 percent sometime early in the year, perhaps by the end of the first half, and 

then climb to 5.5 percent by year-end 2015. 

Multifamily Construction Surging – All in the Same Places

As seen in the chart on the following page, the amount of multifamily new construction has been increasing rapidly, 

especially over the past few years. According to the Dodge Data & Analytics Construction Pipeline, which distinguishes 

between apartment and condo multifamily units, approximately 239,000 apartment units were completed in 2014, with 

another 441,000 underway – 340,000 of which are expected to come online in 2015. 

At a national level, that amount of new multifamily units added to the existing stock is not unreasonable. That is because 

2015 is expected to see job growth of approximately 2.5 percent, according to Moody’s Analytics, which would be an 

addition of more than 3 million new jobs. 

Based on expected job growth, multifamily rental demand is estimated at 530,000 units, however this level of absorption is 

unlikely given that a significant portion of the new supply is located in roughly 12 metro areas, and most of that is further 

concentrated in certain submarkets. National estimated job growth and accompanying demand is not expected to be 

concentrated in just 12 metros, which is why we anticipate that supply will outpace demand over the next few years. 

Fortunately, because the U.S. population includes approximately 45 million people between the ages of 20 and 29 –

which is the cohort most likely to rent an apartment – overall demand is expected to remain in place, and as a result, the 

estimated national vacancy rate is not expected to increase significantly. 
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Rent Growth Will Likely Taper Off but Remain Positive

We expect the same to be true for rent growth, as well. Rent growth has been exceptionally strong over the past few 

years and only started slowing down slightly in 2014. The expectation for 2015 is that rent growth will be positive, but will 

likely slow to a range of about 2.0 percent to 2.5 percent, compared to 3.0 percent in 2014. 

As seen in the chart below, multifamily concessions for all property types are at historic lows, which suggests that supply 

and demand have been out of balance for some time. With the advent of new supply, it is expected that concession rates 

should return to more normalized levels and likely to above average levels in those metros with concentrated supply. 

Indeed, there are already anecdotal reports that concessions in certain metros are already in use. 

Source: Dodge Data & Analytics Construction Pipeline, January 2015

Source: Axiometrics

* Anticipated completion date
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Job Growth Forecasts Mixed Depending Upon Metro

Although all of the nation’s major metros are expected to see positive job growth this year, not all metros are expected to

experience the same level of employment growth, as illustrated in the two charts below. While Moody’s is forecasting 

national job growth of approximately 2.5 percent, they expect a number of metros to not come close to that amount, 

including Washington, DC, Chicago, Philadelphia, and New York. 

Fortunately for some of these metros, such as Las Vegas, Providence, and Pittsburgh, there isn’t a large amount of 

new multifamily supply on the horizon. While this should not be a significant problem for the multifamily sector in some of 

these metros, others such as Philadelphia – with nearly 6,200 units underway – are likely to see diminished rent growth, 

particularly in certain submarkets, over the next 12 to 24 months. 

Other metros will likely fare better. Some of the major Texas metros, such as Dallas and Fort Worth, are expected to

continue seeing above-average job growth, albeit at a slower pace than over the past few years due to the continuing 

price declines occurring in the oil and gas sector. But other metros, such as Charlotte, Phoenix, and some of the Florida 

metros, including Fort Lauderdale and Orlando, also are expected to have above-average job growth this year, helping 

to keep their expected rent growth and vacancy levels healthy. 

Source: Moody’s Analytics

2015 Outlook: Stabilizing Trends Despite New Supply

The outlook for the multifamily sector in 2015 is one of stabilization. Rent growth is expected to remain positive, albeit at a 

lower level than has been the case over the past few years. The concern lies with new supply and that most of it is 

concentrated in a number of submarkets in about 12 metros. While there should be healthy job growth spurring continued 

rental household formations, there is no denying that this concentrated amount of supply – consisting primarily of Class A 

luxury supply – will likely cause a disruption in the underlying fundamentals, producing an increase in vacancy levels and 

reduction in rent growth trajectories affecting the overall metro trend. 

Nevertheless, the nation’s multifamily sector should see another year of positive rent growth. Ongoing demand combined 

with the higher rent levels of these new Class A units coming online in 2015 is expected to push average asking rent up 

by 2.0 percent to 2.5 percent. The new supply also will push vacancy rates up modestly, rising to 5.25 percent in the first 

half of the year and perhaps as high as 5.5 percent by year-end.
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Kim Betancourt

Director of Economics

Multifamily Economics and Market Research

February 2015

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Multifamily Economics and Market Research Group (MRG) 

included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a 

number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many 

factors. Although the MRG bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it 

does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes 

in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, 

estimates, forecasts and other views published by the MRG represent the views of that group as of the date indicated and do not 

necessarily represent the views of Fannie Mae or its management.