Lower interest rates and market stability have renewed developer confidence, but the market is still in recovery.
Multifamily Deliveries Will Slow in 2025
In 2024, a record number of new multifamily properties were delivered to the market. The activity stemmed from the low interest rates in 2021 and 2022, which helped expand the multifamily development pipeline.
“Multifamily developers slowed down when those interest rates went up and things started to change,” says Bridge. “We’ll see the effect of that slow down this year.”
Bridge expects deliveries will decrease by 50% to 60%. While it will be a dramatic change from the delivery schedule from the last few years, it is on par with the multifamily units delivered from 2014 to 2019, according to Bridge.
While economic performance is improving, there remain some obstacles to new development this year. Bridge notes that lending rates are still very high, making it difficult to make a project pencil. In addition, tariffs could significantly increase materials costs, and some are concerned that new immigration policies could exacerbate worker shortages.
“I don’t think that is as big of a hurdle as the higher interest rates,” says Bridge of the tariffs and immigration policy. “Because there has been a slowdown in new construction, there is already increased unemployment of construction workers and better materials pricing.”
California’s Pro-Development Laws Create an Opportunity
California is producing very pro-development legislation to help combat the state’s severe housing shortage. In particular, the state has lifted restrictions on ADU development to help increase the housing stock. Bridge has seen several multifamily properties use the laws to increase density, noting one 40-unit apartment building in Anaheim that converted parking garages into eight new units.
“Normally when you wanted to add an ADU or build new units, they wanted two parking spots per unit,” says Bridge. “Now the parking is really getting eaten up and people are creating units out of the garages.”
The state’s pro-development legislation is also creating an opportunity for developers to redevelop old industrial, office and shopping center sites into new multifamily. “In infill Orange County, we’re seeing smaller industrial and office properties getting torn down to build large apartment buildings in certain areas,” says Bridge.
The legislation isn’t only lifting restrictions, it is also providing financial incentives for certain types of development, like affordable and transit-oriented. These policies are helping developers round out the capital stack and make otherwise impossible projects pencil.
Bridge says that these incentives are becoming a standard part of a developer’s financing package on new construction starts.
