May 18th, 2025
WHAT ARE RENTS DOING?
🏙️ Pacific Northwest Rent Growth Rebounds in 2024, Outlook Positive for 2025
Multifamily housing markets across the Pacific Northwest are regaining stability, with most metropolitan areas seeing positive rent growth in 2024. According to recent data, only Bend, Oregon, experienced a continued decline in rental prices this past year. Seattle posted a rent increase of just under 2%, while Portland edged slightly above 1%. Across Washington, Oregon, and Idaho, most cities reported flat or rising rents, with forecasts pointing to broad-based positive growth by the end of 2025.The early 2020s were marked by sharp swings in rent trends, as pandemic-era demand shifted from major metros to smaller markets. Cities like Spokane and Bremerton saw double-digit gains in 2021, only to face reversals by 2022 as new supply outpaced demand. Now, with construction activity slowing and vacancies stabilizing, the market is becoming more balanced. Cities across the region appear to have moved past peak vacancy rates, setting the stage for a steady rise in rents.
Several smaller markets posted impressive growth:
Grants Pass, OR: 8.9% rent growth (highest in the region)
Bremerton, Yakima & Longview, WA: Over 3% growth
Idaho cities: Generally saw around 2%, though Coeur d’Alene lagged with under 1%
A common theme? Construction slowdowns have reduced new supply, tightening rental conditions and easing competitive pressure.
Boise stands out with the most dramatic improvement in rent-growth projections. With new construction falling sharply from its 2023 peak, vacancy rates are dropping—down 250 basis points since Q3 2024. Key submarkets like Meridian and downtown Boise are expected to drive growth. Boise’s rents are expected to rise from 0.9% mid-year to approximately 3.5% by the end of 2025.
🏗️ Construction Down, Demand Catches Up
Seattle, for example, saw new construction starts fall by 80% from their 2022 peak. Only 14,000 units remain under construction—the lowest level in a decade. This reduction in supply should relieve pressure and support stronger rent growth across the region. With leasing demand stabilizing and fewer units being added, most Pacific Northwest markets are on track for continued recovery. If population growth resumes and the broader economy holds steady, rent gains could outpace current forecasts.
Green Street’s Apartment Rent Tracker, which analyzes weekly asking rents from over 100,000 units nationwide, reveals a stabilizing trend in apartment rents across the U.S. as of April 2025. While overall rent levels remain flat year-over-year, regional disparities point to diverging market conditions.
🏙️ Gateway Markets Continue to Outperform
Gateway markets—such as New York, San Francisco, and Washington, D.C.—are maintaining momentum, with average rent growth approaching 4%. San Jose and San Francisco top the list with impressive 7% year-over-year increases, while New York and the D.C. metro report steady gains of around 3%. Though growth has slowed slightly in recent months, these markets continue to set the pace.
🏡 Non-Gateway Markets Show Mixed Results
Outside of traditional gateways, non-Gateway markets are averaging about 2% rent growth. However, some cities are outperforming:
Chicago, Minneapolis, and Central NJ each recorded strong gains between 4–5%
Denver and Salt Lake City saw notable declines, each reporting 3% drops in rent
The Sunbelt region remains the softest segment of the national rental landscape:
Austin, Phoenix, and Orlando experienced rent declines between 3–5%
Bright spots include Nashville and Tampa, both of which reported modest rent growth of 1% or more
🔎 Key Takeaway
While nationwide rent growth has plateaued, market-level performance varies widely. Investors and operators should continue to monitor local fundamentals closely, especially as macroeconomic conditions, supply levels, and migration patterns evolve.
📉 “Liberation Day” Tariffs Unleash Record Economic Uncertainty
The latest tariff announcements—dubbed by some as the Administration's “Liberation Day” campaign—have rattled markets and pushed economic uncertainty to record highs, outpacing levels seen during the 2008 Financial Crisis and the 2020 COVID-19 Pandemic.
⚠️ Uncertainty Freezes Decision-Making
In April 2025, the Baker-Bloom-Davis Economic Policy Uncertainty Index hit an all-time high, while the VIX (stock market volatility index) surged to levels unseen since prior economic shocks. The S&P 500 briefly declined by as much as 19%, and 10-year Treasury yields fluctuated between 4.0% and 4.5%. Although partial recoveries in both equities and fixed income began late in the month, the whiplash has investors on edge. “Investors, corporations, and consumers alike are facing daily shifts in policy signals. This environment creates paralysis in capital deployment and planning.”
🏛️ Policy Uncertainty Hurts Growth Outlook
The Wall Street Journal’s April economist survey showed a sharp pivot: nearly all respondents now expect slower growth, higher inflation, and greater recession risk compared to the January outlook. Tariffs act like consumption taxes, while uncertainty suppresses business investment—an economic double blow. The magnitude of the impact remains unclear. A mild recession could sustain inflation as firms pass costs along to consumers, but a deeper downturn could reverse inflationary pressure as demand collapses.
💵 Wealth Effects May Drag Consumption
High-income households—who account for half of all consumer spending—are especially sensitive to equity market shifts. With 87% of equities held by the top 10% of earners, even unrealized losses can reduce spending through the “wealth effect.” However, April’s partial stock market rebound may help soften the blow to consumption.
🏗️ CRE and Capital Markets Face Higher Risk Premiums
Tariff-driven uncertainty has already affected CRE debt markets, with long-term base rates becoming more volatile. Borrowers are increasingly favoring shorter-term debt, which is more closely tied to Fed policy and expected to decline by 75 to 100 basis points in 2025. “Uncertainty around long-term U.S. dollar strength and treasury demand is pushing up base rates, complicating debt pricing and underwriting for real estate investors.” The rise in origination spreads reflects lender caution and could create a drag on transaction volumes as debt becomes more expensive to price.
🌐 The Trade-Off: Onshoring vs. Higher Costs
While the Administration’s across-the-board tariffs may support domestic production, they also raise input costs for industries downstream. Steel tariffs, for example, may revive U.S. mills but hurt automakers and construction. Reciprocal tariffs from trade partners could erode trade volumes without necessarily fixing trade balances. Any long-term benefit hinges on whether the Administration can strike targeted, pro-growth trade deals—a tall order given the market’s current confidence levels.
📉 Final Thought: Capital Surplus or Capital Flight?
The U.S. has historically benefited from its trade deficits by attracting foreign capital inflows into stocks, bonds, and real estate. If the goal is to cut bilateral trade deficits, we should also expect reduced demand for dollar-denominated assets, putting pressure on Treasury yields—a trend already weighing heavily on CRE since 2022.
Bottom Line:
The ongoing tariff shifts and erratic policy signals have created the most uncertain investment environment in modern history. While long-term effects remain highly contingent on trade negotiations, in the short term, CRE investors and borrowers should prepare for more volatility, slower growth, and tighter financing conditions.
Multifamily emerges as a short-term winner amid rising construction costs and economic uncertainty
Recent shifts in U.S. trade policy are beginning to ripple through the commercial real estate (CRE) sector, with tariffs expected to have mixed effects—largely negative in the long term, though some multifamily segments may benefit in the near term.
🛑 Tariffs Squeeze Consumer Wallets and CRE Fundamentals
As tariffs raise the cost of goods, household disposable income is expected to decline, potentially slowing household formation and reducing renters’ ability to absorb future rent hikes. This economic strain could also discourage new home purchases, indirectly supporting rental demand in the short term. At the same time, construction costs are rising—a combination of pricier materials, foreign-made fixtures, and potential constraints on immigrant labor. These factors are making new multifamily development less feasible, especially in already expensive metro areas, further pressuring housing affordability.
🏢 Stabilized Multifamily Assets Gain Ground
While value-add strategies may lose momentum amid inflation in renovation costs, owners of existing, stabilized multifamily properties may benefit. With new supply expected to slow, limited competition may push rents upward, leading to higher net operating income (NOI) for current owners. Multifamily also has a structural advantage during volatile economic periods. Unlike office or retail, multifamily leases typically reset every 12 months, allowing landlords to quickly adjust rents in response to inflation.
📈 "Trailing 12-month absorption in the multifamily sector has accelerated for nine straight quarters, underscoring persistent demand," according to RealPage data.
🌍 Global Capital Cools Amid Rising Nationalism
Protectionist trade policies and rising tariffs are also cooling the international investment climate. Cross-border capital—especially from Canada, the largest foreign investor in U.S. multifamily—is expected to decelerate amid uncertainty and possible retaliatory trade moves. Shrinking trade deficits with countries like Canada could reduce capital inflows into U.S. real estate markets. The result? Lower liquidity, reduced transaction volumes, and downward pressure on valuations.
🔮 Long-Term Headwinds for Supply and Affordability
The cumulative effects of tariffs, high construction costs, and a less predictable immigration policy could further limit new multifamily development, especially in areas already facing a housing shortage. At the same time, labor availability could decline, increasing project timelines and budgets. While short-term dynamics favor existing multifamily owners, the long-term picture is more complex. Affordability pressures, regulatory uncertainty, and declining foreign capital could pose serious challenges for CRE as a whole.
Bottom Line:
Tariffs are introducing inflationary and structural headwinds across commercial real estate. Multifamily stands out as a resilient performer in the near term, but long-term supply constraints and capital uncertainty could disrupt market fundamentals. Stakeholders should closely monitor policy developments, cost trends, and investor sentiment.
🏛️ Texas Bill Could Trigger Wave of Multifamily Loan Defaults
A sweeping bill passed by the Texas Senate this week is sending shockwaves through the state's multifamily housing sector. Industry experts warn it could put billions of dollars in loans at risk, stall new development, and force legal challenges as stakeholders scramble to comply with its far-reaching provisions. The legislation—now awaiting Governor Greg Abbott’s signature—requires that at least 50% of savings from property tax-exemption deals be used to lower tenant rents. It also introduces mandatory audits to enforce compliance, raising fears that many properties may not withstand scrutiny. Analysts warn that hundreds of properties tied to Housing Finance Corporation (HFC) tax abatements may lose those benefits, potentially triggering loan defaults or distressed sales.
The industry has relied heavily on such structures in recent years to bolster financing—particularly for struggling properties. By reducing tax burdens, these deals improved cash flow projections and helped loans clear underwriting or exit watch lists.
🏗️ Tax Abatement Under Fire
Lawmakers pushed the bill in response to what they say was widespread misuse of HFC arrangements, particularly through “traveling HFCs”—entities operating outside their jurisdictions to qualify distant properties for tax relief.
According to legislative estimates, these deals have cost local governments more than $300 million in lost property taxes and are tied to $15 billion in real estate assets and over $10 billion in debt.
Three reform bills were considered, but the most restrictive version, sponsored by Rep. Gary Gates, passed with overwhelming bipartisan support—113-15 in the House and 30-1 in the Senate. These margins suggest lawmakers could override a veto if necessary.
🧾 Audits and Legal Uncertainty
While the bill is not retroactive, owners must comply at refinancing or sale events, or within 10 years, whichever comes first. Still, the scale of the bill has surprised many. While many developers and lenders view the bill as punitive, others see it as a necessary correction. An affordable housing lender welcomed the change, pointing to recent investor documents that promoted tax breaks while promising no rent reductions.
🔍 What’s Next?
If signed into law, the bill could:
Disrupt or devalue thousands of properties using HFC tax abatements
Prompt constitutional and administrative legal challenges
Lead lenders to reassess new and existing Texas multifamily deals
With bipartisan backing and wide-ranging implications, this legislation marks a pivotal shift in how Texas approaches affordable housing incentives—and how much risk stakeholders are willing to shoulder.
