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Can Residential REITs Bounce Back on Solid Demand in Early '25?
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The first quarter of 2025 brought a wave of strong apartment demand, offering a lift to occupancy and rent growth as the supply surge begins to wane.
Per RealPage data, from January through March 2025, more than 138,000 market-rate apartment units were absorbed nationally. This marks the highest first-quarter demand on record in the RealPage data set covering more than three decades. Combined with the robust demand seen over the last three quarters of 2024, annual absorption reached nearly 708,000 units — essentially matching the absorption from the early 2022 demand boom.
This signals good for residential REIT investors like AvalonBay Communities, Inc. (AVB - Free Report) , Equity Residential (EQR - Free Report) , Essex Property Trust, Inc. (ESS - Free Report) and UDR, Inc. (UDR - Free Report) . Elevated absorption suggests that renter appetite for professionally managed apartments is holding firm despite broader macro uncertainty.
Importantly, demand in the year-ending first quarter of 2025 exceeded concurrent supply. Though nearly 577,000 units were delivered in the said period — just shy of last quarter’s record high of about 589,000 units — annual supply volume is forecasted to decline in the coming months, indicating that the construction cycle may have peaked.
Occupancy and Rent Growth Stabilizing
Occupancy rose modestly to 95.2% in March, the highest reading since October 2022. While still within long-term norms, the uptick provides confidence that the rental market is not materially oversupplied.
Rent growth has also regained traction. Effective rents rose 0.75% in March and 1.1% in the year-ending March 2025 — the highest 12-month reading since June 2023. Notably, all of the nation’s 50 largest apartment markets recorded rent increases on a monthly basis, signaling broad-based strength. The average effective rent was $1,848.
However, the recovery is regionally uneven. The Midwest and Rust Belt regions led annual rent gains, with cities like Kansas City, Chicago, and Pittsburgh outperforming. In contrast, high-supply Sun Belt metros, such as Austin and Phoenix, continued to experience rent cuts, though even these markets saw monthly rent growth in March, suggesting momentum is returning ahead of the prime leasing season.
Economic Conditions Present a Mixed Picture
However, not all is hunky-dory for the industry. Macroeconomic conditions present a mixed picture for the multifamily industry. While employment growth remains positive, it has decelerated. Moreover, consumer confidence is under pressure. Though inflation is still being controlled, there are concerns around tariffs and their downstream effects on both consumers and the industry.
These factors may create short-term volatility in REIT stock performance. However, the long-term demand drivers for multifamily housing — rising household formation, constrained homeownership affordability, and demographic tailwinds — remain firmly intact.
Residential REITs Positioning and Outlook
Residential REITs like AvalonBay, Equity Residential and UDR are well-positioned to benefit from these improving fundamentals.
In AvalonBay’s first-quarter operating update, the company noted witnessing the same-store operating metrics in line with its expectations as provided in its initial 2025 outlook. Per the operating update, economic occupancy for its same-store residential portfolio was 95.9%, including actuals for January and projections for February as of Feb. 26. This was an improvement from 95.6% in the fourth quarter of 2024. The like-term effective rent change for the same-store residential portfolio was 1.6% from January through Feb. 26, up from 1.1% in the fourth quarter of 2024.
Per UDR’s March investor presentation, key operating metrics are tracking in line with the guidance shared during the fourth quarter earnings call, with the first quarter of 2025 showing sequential gains in both blended lease rate growth and occupancy.
Equity Residential boasts a portfolio of high-quality apartment units in some of the key markets of the United States with an affluent tenant base. The high cost of home ownership is likely to keep renter demand up in its markets. The company’s diversification efforts into the suburban markets to capture rising demand are encouraging. Focus on technology to drive margin expansion augurs well.
Currently, Equity Residential, Essex Property Trust and UDR carry a Zacks Rank of 3 (Hold) each, while AvalonBay Communities has a Zacks Rank of 4 (Sell).
Image: Shutterstock
Can Residential REITs Bounce Back on Solid Demand in Early '25?
The first quarter of 2025 brought a wave of strong apartment demand, offering a lift to occupancy and rent growth as the supply surge begins to wane.
Per RealPage data, from January through March 2025, more than 138,000 market-rate apartment units were absorbed nationally. This marks the highest first-quarter demand on record in the RealPage data set covering more than three decades. Combined with the robust demand seen over the last three quarters of 2024, annual absorption reached nearly 708,000 units — essentially matching the absorption from the early 2022 demand boom.
This signals good for residential REIT investors like AvalonBay Communities, Inc. (AVB - Free Report) , Equity Residential (EQR - Free Report) , Essex Property Trust, Inc. (ESS - Free Report) and UDR, Inc. (UDR - Free Report) . Elevated absorption suggests that renter appetite for professionally managed apartments is holding firm despite broader macro uncertainty.
Importantly, demand in the year-ending first quarter of 2025 exceeded concurrent supply. Though nearly 577,000 units were delivered in the said period — just shy of last quarter’s record high of about 589,000 units — annual supply volume is forecasted to decline in the coming months, indicating that the construction cycle may have peaked.
Occupancy and Rent Growth Stabilizing
Occupancy rose modestly to 95.2% in March, the highest reading since October 2022. While still within long-term norms, the uptick provides confidence that the rental market is not materially oversupplied.
Rent growth has also regained traction. Effective rents rose 0.75% in March and 1.1% in the year-ending March 2025 — the highest 12-month reading since June 2023. Notably, all of the nation’s 50 largest apartment markets recorded rent increases on a monthly basis, signaling broad-based strength. The average effective rent was $1,848.
However, the recovery is regionally uneven. The Midwest and Rust Belt regions led annual rent gains, with cities like Kansas City, Chicago, and Pittsburgh outperforming. In contrast, high-supply Sun Belt metros, such as Austin and Phoenix, continued to experience rent cuts, though even these markets saw monthly rent growth in March, suggesting momentum is returning ahead of the prime leasing season.
Economic Conditions Present a Mixed Picture
However, not all is hunky-dory for the industry. Macroeconomic conditions present a mixed picture for the multifamily industry. While employment growth remains positive, it has decelerated. Moreover, consumer confidence is under pressure. Though inflation is still being controlled, there are concerns around tariffs and their downstream effects on both consumers and the industry.
These factors may create short-term volatility in REIT stock performance. However, the long-term demand drivers for multifamily housing — rising household formation, constrained homeownership affordability, and demographic tailwinds — remain firmly intact.
Residential REITs Positioning and Outlook
Residential REITs like AvalonBay, Equity Residential and UDR are well-positioned to benefit from these improving fundamentals.
In AvalonBay’s first-quarter operating update, the company noted witnessing the same-store operating metrics in line with its expectations as provided in its initial 2025 outlook. Per the operating update, economic occupancy for its same-store residential portfolio was 95.9%, including actuals for January and projections for February as of Feb. 26. This was an improvement from 95.6% in the fourth quarter of 2024. The like-term effective rent change for the same-store residential portfolio was 1.6% from January through Feb. 26, up from 1.1% in the fourth quarter of 2024.
Per UDR’s March investor presentation, key operating metrics are tracking in line with the guidance shared during the fourth quarter earnings call, with the first quarter of 2025 showing sequential gains in both blended lease rate growth and occupancy.
Equity Residential boasts a portfolio of high-quality apartment units in some of the key markets of the United States with an affluent tenant base. The high cost of home ownership is likely to keep renter demand up in its markets. The company’s diversification efforts into the suburban markets to capture rising demand are encouraging. Focus on technology to drive margin expansion augurs well.
Currently, Equity Residential, Essex Property Trust and UDR carry a Zacks Rank of 3 (Hold) each, while AvalonBay Communities has a Zacks Rank of 4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.