Monday Market Moves | Week of 14 July 2025
Welcome to Monday Market Moves, the weekly series from Essex Capital Markets briefing you on Chicago commercial real estate capital markets. We cover key trends in CRE debt, refinancing, and capital structures to help investors, borrowers, and lenders navigate today’s evolving environment.
This Week: Multifamily Momentum in CRE
Multifamily real estate continues to shine as the hottest trend in commercial property markets this week, with especially strong signals coming from the Midwest. Even as other sectors (like office) face headwinds, apartments remain a bright spot – bolstered by resilient renter demand and disciplined new supply. These developments spell opportunity: financing conditions are improving, and market fundamentals are encouraging for borrowers, investors, and developers. As one industry update noted, multifamily “shows continued strength nationwide, supported by renter demand, zoning reforms, and limited new supply”. Below, we break down the latest trends in capital markets, leasing, investment activity, construction, and policy.
Key Highlights (Week of July 14, 2025)
• Multifamily Leads CRE: Apartments remain the top-performing sector in CRE, with Midwest markets like Chicago among the strongest. Chicago boasts low vacancies (~4.7%) and solid rent growth (~3.8% YoY) thanks to steady demand and limited construction. Strong fundamentals and high investor interest persist across most regions.
• Financing Conditions Improve: Interest rates have stabilized. The Fed held its benchmark rate at ~4.25–4.50% in May and signaled potential cuts later in 2025. Financing costs are already “broadly cheaper…than last summer,” a welcome relief for borrowers. Lender appetite for multifamily is growing – Q1 2025 multifamily loan originations jumped ~39% year-over-year, and banks, life companies, and agencies all expanded apartment lending early this year.
• Resilient Leasing & Rents: Leasing fundamentals remain healthy. The average U.S. asking rent hit $1,761 in May, up ~1.0% from a year ago. National occupancy hovers in the mid-94% range, historically solid. Importantly, many Midwest and gateway metros are outpacing the national average – e.g. Kansas City rents are up ~4.0% YoY and Chicago’s occupancy (~96%) beats the U.S. average. In Chicago, vacancy is only ~4.7% and rents climbed ~3.8% over 12 months, reflecting tight supply.
• Active Investment Market: Investor confidence is returning. U.S. apartment sales totaled ≈$158 billion in the last 12 months – on pace to be the highest annual volume since 2022. Overall deal activity is approaching pre-pandemic levels, with observers noting “renewed momentum” as borrowers and lenders find ways to move new deals forward despite earlier rate volatility. Multifamily is now widely considered the “most preferred” asset class for CRE investors in 2025, given its strong performance.
• Construction & Policy Tailwinds: New supply is decelerating sharply, which bodes well for maintaining a landlord-favorable balance. By mid-2025, multifamily construction starts are down ~74% from their 2021 peak (and ~30% below pre-pandemic norms). This construction slowdown – after two years of heavy building – gives the market breathing room to absorb units. In fact, in Chicago over the past year, demand far outpaced new deliveries (≈10,153 units absorbed vs. 5,433 delivered), keeping vacancy low. Policy developments are also positive: the latest federal budget increased Low-Income Housing Tax Credit (LIHTC) allocations by 12.5% and renewed the Opportunity Zone program, measures that could help finance hundreds of thousands of new housing units. In Chicago, local incentives (the LaSalle Street revitalization program) are spurring office-to-apartment conversions, with six projects underway to add ~1,765 units and reinvest $900 million into downtown housing.
Capital Markets & Financing
Debt capital for multifamily is flowing more freely in mid-2025, creating a constructive environment for borrowers. The interest rate outlook has improved markedly from last year: the Federal Reserve has paused its rate hikes, keeping the federal funds rate in the ~4.25–4.50% range. While any significant rate cuts likely won’t occur until later in the year, this stability alone has benefited the lending climate. In fact, financing is broadly cheaper today than it was a year ago – a trend industry experts call “great news” for those seeking loans.
Lenders are signaling heightened appetite for well-performing assets like apartments. The Mortgage Bankers Association reports that commercial/multifamily mortgage originations posted a strong rebound in early 2025, led by multifamily deals. Multifamily loan originations were ~39% higher in Q1 2025 than a year prior, a remarkable jump that underscores growing confidence. Notably, all major lender groups are active: banks, life insurance companies, and agency lenders (Fannie Mae/Freddie Mac) all increased their multifamily lending volume year-over-year in the first quarter. This means borrowers are seeing plenty of financing options and competition among lenders – a positive for securing favorable terms.
Loan terms for multifamily remain attractive relative to other property types. Stable occupancy and cashflows in apartments allow lenders to offer higher leverage and interest-only periods on strong deals. We’re observing spreads tightening modestly as more lenders chase multifamily paper, and debt funds and CMBS conduits are re-emerging to fill any gaps left by cautious banks. With the 10-year Treasury yield range-bound and the Fed on hold, mortgage rates for apartments have plateaued and even ticked down from 2024’s highs. Put simply, debt capital is available and competitively priced for multifamily acquisitions and refinances – a welcome tailwind for our clients looking to lock in financing now.
Leasing & Rent Growth
Apartment leasing fundamentals remain solid and on an upswing. Nationally, rents are rising gradually – the average U.S. asking rent reached $1,761 in May 2025, about 1% higher than a year ago. While that growth is modest compared to the post-pandemic rent boom, it marks a stabilization and return to positive territory after some markets saw flattening rents last year. More importantly, tenant demand is absorbing new supply in most cities. The average occupancy rate nationwide is about 94–95% (94.4% as of April), which is the lowest since 2013 yet still a healthy level by historical standards. This slight dip in occupancy stems from the wave of new construction recently delivered; encouragingly, demand has proven resilient enough to keep vacancies in check even in high-supply metros.
In fact, we are seeing rebound signs in many markets. Some metros that had negative rent growth in 2024 have turned the corner into positive rent gains this year. Midwest and Northeast markets are standouts. These regions avoided the oversupply that hit certain Sun Belt cities, and now their rents are climbing faster than the national average. For example, Kansas City posted 4.0% year-over-year rent growth – among the highest in the nation. Columbus isn’t far behind at ~3.3% YoY rent growth. CBRE forecasts that many Midwest, Northeast, and gateway cities will see annual rent increases above 3% in 2025, outpacing the ~2.6% U.S. average projected. In short, heartland markets are shining, bolstered by steady local economies and less competitive supply pressure.
Chicago’s multifamily sector exemplifies this positive trend. The Chicago metro started 2025 on a strong foot – its fundamentals are healthy despite broader economic uncertainty. Average effective rents in Chicago have inched up in recent months, and the metro’s stabilized occupancy was ~95.9% in Q1 (as of March), comfortably above the national rate. Today, Chicago’s vacancy sits around just 4.7% – one of the lowest among large U.S. metros – reflecting how tight the market is. Rents in Chicago are still rising at a 3.8% annual clip, and some forecasts expect 5%+ rent growth for the full year 2025 given the limited new supply. This combination of low vacancy and steady rent increases speaks to the metro’s robust renter demand (boosted by population stability and continued inbound migration) and the absence of oversupply. Many renters remain renters by choice or necessity due to high home prices and mortgage rates – a national trend that is particularly playing out in expensive coastal and gateway cities, but also supporting demand in Chicago. As long as the cost-to-own vs. rent gap stays wide, we anticipate leasing momentum to remain positive.
Across the board, landlords are regaining slight pricing power, though rent growth is measured and varies by submarket. Class A luxury units in some downtown areas are offering targeted concessions to fill new buildings, but leasing velocity is solid. Meanwhile, workforce and Class B apartments are near full occupancy in many cities, underpinning consistent rent hikes. All told, the rent outlook is optimistic yet sustainable – think low-to-mid single-digit percent growth, which is constructive for both borrowers (due to stable cash flows) and renters (avoiding rent spikes). This healthy equilibrium in the multifamily leasing market is a key reason investors and lenders remain bullish on the sector.
Investment Activity & Volume
The investment market for multifamily properties is showing clear signs of renewed optimism. After a slower 2023, transaction activity is picking up as buyers and sellers adjust to the new interest rate environment. Over the last 12 months, U.S. multifamily sales volume totaled roughly $157.7 billion – putting 2025 on track to log the highest apartment sales total since 2022. For context, this volume is significantly above the 15-year average, indicating that investors are indeed making deals happen at an elevated pace.
Deal flow in Q1 2025 was especially telling. According to the Mortgage Bankers Association, multifamily mortgage originations surged 39% year-over-year in Q1, reflecting pent-up transaction activity compared to the very slow first quarter of 2024. While volume was down from the unusually busy Q4 2024 (as is typical seasonally), the year-over-year jump is a strong signal of confidence returning to the market. In the words of MBA’s Vice President of Research, the Q1 rebound “signals renewed momentum and growing confidence in key segments of the market. Despite ongoing volatility in interest rates… borrowers and lenders are finding opportunities to move new deals forward.”. This sentiment captures the general mood: market participants have become more comfortable underwriting at current interest rates and are seizing opportunities rather than sitting on the sidelines.
Investors remain highly interested in multifamily assets, viewing them as comparatively safe and income-producing in uncertain times. In fact, major research firms now rank multifamily as the top preferred asset class for CRE investors in 2025. The combination of strong fundamentals and the expectation of easing interest rates ahead is fueling this attractiveness. Cap rates, which had risen last year alongside interest rates, have largely stabilized. Recent estimates show average multifamily cap rates leveling in the mid-5% range nationally and even ticking down slightly from their 2024 highs. Looking forward, some forecasts anticipate mild cap rate compression over the next 12–18 months (possibly into the low-5% range by late 2025) as financing costs gradually abate. For investors, that implies upside in values – acquiring assets now may yield value gains if cap rates indeed firm up. This expectation is adding to the “fear of missing out” on quality deals hitting the market.
In the Midwest, investment activity has been notably resilient. Chicago’s multifamily investment market, for instance, remains active and competitive. Sales volume in metro Chicago totaled about $4.4 billion in the past 12 months, and while that’s a bit off the peak frenzy of 2021, it’s still a robust level of trading. Investor demand spans from core downtown high-rises to suburban garden complexes, with cap rates around the 6% range on average – a favorable spread over current borrowing costs, especially as rents continue to grow. Well-leased assets in good locations are attracting multiple bids, and private capital (1031 exchange buyers, local syndicates) has stepped in even as some institutional buyers remain price-sensitive. Overall, the market tone is positive: pricing has adjusted from the 2021 peak, creating opportunities for buyers with a longer horizon, and sellers are finding liquidity if their price expectations align with today’s underwriting. With abundant debt capital (as discussed above) and solid property performance, the multifamily investment market is expected to stay active through the second half of 2025. We see this as a constructive climate for our clients considering acquisitions, dispositions, or refinances.
Construction Pipeline & Development
One of the most encouraging trends for multifamily owners is the significant cooling of new construction starts. After several years of breakneck apartment development (2021–2023 saw record units being built in many cities), developers are now pumping the brakes. By mid-2025, multifamily construction starts are estimated to be 74% below their 2021 peak levels and about 30% below the pre-pandemic average pace. This dramatic pullback is largely due to higher construction costs, elevated financing rates for development, and a bit of caution as the market absorbed the recent supply wave. For the market’s health, this is welcome news – a shrinking pipeline means less risk of oversupply and a better chance for existing and under-construction projects to lease up successfully.
Indeed, in many of the previously high-supply metros, deliveries have peaked or will peak this year. The excess inventory that challenged markets like Austin, Phoenix, and Charlotte is starting to get worked through, and vacancy rates in those cities are already beginning to improve. As CBRE notes, the “recovery will accelerate next year” in those high-supply markets as completions slow considerably. Crucially, the surge in renter demand we’re seeing has come at an ideal time to soak up new units. Nationwide absorption over the past year has been very strong (RealPage analytics even reported the highest annual apartment demand on record by mid-2025), driven by robust job growth, population gains, and renters frustrated by high homeownership costs. This exceptional demand has already absorbed a large amount of the new supply wave and is preventing vacancy from spiking. It’s a classic case of supply and demand finding a new equilibrium – and right now, demand is winning.
In Chicago, for example, the development pipeline has thinned after a couple of big years. Only 1,277 units were delivered in the first four months of 2025, and about 9,600 units remain under construction across the metro – a manageable 1.4% of existing inventory. With construction moderating, Chicago’s absorption (≈10k units in the past year) far exceeds new supply, allowing the market to tighten. This dynamic is playing out in many Midwest cities that did not overbuild. Limited new deliveries combined with steady demand is a formula for rising rents and high occupancy, which we are already witnessing. Developers and investors with projects in lease-up can be cautiously optimistic: the rent-up periods are shortening in many cases, and concessions are starting to burn off as competition from new buildings eases.
Another development trend worth noting is the adaptive reuse of underutilized commercial space into apartments. Particularly in urban cores like Chicago, where some older office buildings struggle with vacancy, city initiatives are encouraging conversions to residential use. The LaSalle Street Corridor revitalization program in Chicago is a prime example – it provides incentives for owners to convert outdated downtown office towers into apartments (often with an affordable housing component). Six conversion projects have already been approved, totaling $900 million in investment and about 1,765 new units for the Loop area. These projects not only add much-needed housing stock without ground-up construction, but they also help absorb obsolete offices, thus killing two birds with one stone (addressing office vacancy and housing supply). For developers and lenders, such conversions can be attractive deals – the city’s support (tax incentives, faster permitting, etc.) improves feasibility, and the end product tends to lease quickly given the prime locations. We view these creative redevelopment trends as win-win opportunities that our commercial mortgage brokerage is keen to finance and support, especially as more cities consider similar incentives.
Looking ahead, the construction slowdown sets the stage for a favorable supply-demand balance. As CBRE’s outlook summarizes: “Shrinking construction pipelines, strong renter demand, rising occupancies and accelerating rent growth are expected across all markets in 2025.” By 2026, many experts anticipate that vacancies will compress further and rent growth could even exceed long-term averages in markets that have worked through their recent supply. For borrowers and developers, this implies that projects delivered in the next couple of years could benefit from a dearth of new competition. We are already seeing some forward-looking investors pursue development or heavy renovation plays now, aiming to deliver into a 2025–2027 window of limited new supply. With construction costs stabilizing and government incentives (from federal LIHTC to local tax abatements) available, there is an optimistic case for starting new multifamily projects in select markets – particularly in undersupplied segments like affordable and workforce housing.
Policy & Incentives
Policy developments at both the federal and local level are further bolstering the multifamily sector, creating tailwinds for financing and development. On the federal side, housing advocates scored some wins in recent legislation. Notably, Congress’s latest budget deal included a 12.5% increase in funding for Low-Income Housing Tax Credits (LIHTC) and an extension of the popular Opportunity Zones program. These measures are promising for the industry – LIHTC is a key tool that drives affordable apartment construction, and the boost could translate to tens of thousands of additional affordable units nationwide. The renewal of Opportunity Zones (which offer tax advantages for investing in designated underserved areas) is also significant; it continues to encourage development capital to flow into multifamily and mixed-use projects in revitalization areas. Analysts estimate that collectively, these policies could help spur the development of 500,000+ housing units in the coming years. For borrowers, this means more projects penciling out and more financing opportunities – from tax-exempt bond deals to OZ equity investments – all of which aligns with a positive, pro-growth outlook for multifamily.
At the local level, many city and state governments are proactively supporting multifamily growth through zoning reforms and incentive programs. For instance, various jurisdictions in the Midwest have relaxed zoning to allow higher-density housing or ADUs (accessory dwelling units), aiming to increase rental housing stock. As referenced earlier, Chicago’s LaSalle Street Reimagined initiative is funneling grants and tax incentives to convert commercial buildings to residences. Other cities like Detroit and Cleveland are offering property tax abatements for new multifamily developments or rehabs, improving project viability. Additionally, several Midwestern states are deploying housing trust fund dollars or low-interest loan programs to stimulate workforce housing construction. These policy moves, while not headline-grabbing, collectively contribute to a more favorable environment for multifamily expansion. They also signal that public-sector stakeholders recognize the importance of the rental housing sector and are partnering with private players to address housing needs.
For a commercial mortgage broker, these incentive programs and policy trends mean more arrows in the quiver when structuring deals. We can often layer in tax credits, local grants, or bond financing to lower the cost of capital for a project. The current policy landscape – from federal tax credits to local conversion incentives – is arguably the most supportive it has been in years for multifamily. Borrowers with projects that meet community goals (like affordable housing or urban revitalization) can tap into these programs, thus enhancing their project’s returns and attractiveness to lenders. We remain vigilant in tracking these opportunities so our clients can benefit from any “free money” or special financing available. It’s another reason to feel optimistic about multifamily: not only are market fundamentals strong, but the policy winds are at our backs.
Outlook: Constructive and Upbeat
As we kick off the week of July 14, 2025, the overarching narrative in commercial real estate is one of cautious optimism turning into active optimism – and nowhere is that more evident than in the multifamily arena. The sector’s ability to weather economic uncertainty (high interest rates, inflation, etc.) and still post positive rent growth, low vacancies, and record-high lending volumes is a testament to its resilience. Investors and lenders have taken notice, and confidence is rebounding.
Looking ahead through the second half of 2025, we expect the favorable trends to continue. Interest rates are widely anticipated to gradually decline or at least not rise further, which will only improve financing costs and could unlock more deal activity. Renter demand should stay robust – demographic drivers (like the large cohort of millennial and Gen Z renters) and the cost of owning will keep many Americans in the rental market. Even if the economy faces headwinds, housing is a basic need, and multifamily historically performs well in various cycles. Additionally, with fewer new units coming to market next year, many regions may actually experience a housing shortage that pushes rents up faster.
For borrowers and real estate investors, this environment presents opportunities that we are eager to help capitalize on. Stabilized properties can look to refinance for better terms as rates stabilize; value-add and development projects can move forward knowing the demand will be there upon completion. Lenders are actively competing for multifamily loans, which often translates into more flexible terms or creative financing solutions (higher leverage mezzanine pieces, earn-out structures for lease-up properties, etc.). In short, the multifamily sector’s constructive outlook means now is an advantageous time to evaluate new investments or refinancing strategies.
To conclude on a high note, it’s worth reiterating that multifamily real estate is leading the CRE market’s recovery. As one major brokerage’s outlook put it, the combination of solid fundamentals and easing headwinds makes apartments the “most preferred asset class” this year. Vacancies are expected to edge down and rents to edge up going into 2026 – a trend that spells good news for those involved in the apartment sector. We remain bullish and enthusiastic about the opportunities ahead. This optimism isn’t just wishful thinking; it’s grounded in the data and trends we’re seeing week by week.
Bottom line: the multifamily sector in mid-2025 offers a constructive, even upbeat, landscape for borrowers, investors, and developers. From cheaper debt to strong rent rolls, the pieces are in place for successful outcomes. We at [Your Company] are excited to help clients navigate this environment – whether it’s securing a favorable loan, identifying a promising acquisition, or structuring an innovative financing deal – and to continue reporting on the positive momentum in the weeks to come. Here’s to a week of progress and profitable opportunities in the multifamily market!
Sources: The analysis above is supported by recent market data and reports, including Yardi Matrix’s May/June 2025 multifamily updates, research from CBRE and Fannie Mae on 2025 forecasts, an MBA lending trends release, Arbor’s Q1 2025 market snapshot, and local insights into the Chicago market, among others. All indicators point to a constructive outlook for multifamily as we start this week, with plenty of reasons for optimism in the sector.
Sources:
Seyfarth
CRE Consult
Janover
Mortgage Bankers Association
Yardi Matrix
CRE Consult
Arbor
CBRE
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