Multifamily Demand Hits 25-Year High as New Construction Plummets

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Good morning. Surging demand met a shrinking pipeline in Q2 2025, creating one of the strongest quarters for multifamily absorption in decades.

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• Capital reallocation: As traditional assets like office buildings fall out of favor, institutional investors are pouring billions into once-overlooked sectors like data centers, manufactured housing, marinas, and cold storage. 

• Yield curve: Political pressure on the Fed to cut rates is spooking investors, steepening the yield curve and fueling fears that artificial policy moves could disrupt bond markets and long-term borrowing costs.

• SFR strength: SFRs continued to stabilize in Q3, with rising rents, stronger occupancy, and improving tenant retention marking its shift from rapid expansion to steady performance. 

• Transfer drag: Higher real estate transfer taxes are curbing sales and values, with cities like L.A., Philadelphia, and Pittsburgh seeing sharp drops in housing and CRE activity. 

• Bond binge: Flush with fresh equity, mortgage REITs are set to scoop up $30B–$50B in mortgage-backed securities this year—their heaviest buying since before the pandemic. 

• Executive transition: Blackstone named Katie Keenan as CEO of its $53B Breit fund and global head of Core+ real estate, succeeding Wesley LePatner after her tragic death.

• Split demand: High ownership costs are pushing affluent renters into city cores and others to exurban rentals, forcing developers to adapt lease-up and pricing strategies. 

• Market overlap: In many metros, market-rate rents overlap with affordable units, eroding the advantages of housing programs and intensifying tenant competition. 

• Record levels: Multifamily demand hit a 25-year high in Q2, with 116K units absorbed, keeping pace with last year’s record levels. 

• Big builders: While most NYC developers are avoiding large projects under costly 485-x rules, some firms are still pursuing big towers in Manhattan and the boroughs.

• Colossus build: Musk’s xAI is rapidly scaling its Memphis “Colossus 2” hub toward 1GW capacity, set to be the world’s largest data center. 

• Doral deal: Terreno Realty bought the newly built Royal Palm Doral industrial complex for $131M from Link Logistics and Blackstone, part of a $1.1B wave of South Florida warehouse sell-offs. 

• Power crunch: Pennsylvania’s data center boom is straining the grid, driving up electricity costs for residents, and prompting regulators to craft tariffs that shift more financial risk onto operators. 

• Big pharma: Eli Lilly will invest $5B in a new manufacturing facility near Richmond, Virginia—its first fully integrated API and drug product site.

• Billing scheme: A former Vornado exec is accused of creating fake companies and billing the REIT for $9.5M in bogus services over 15 years, using the funds to finance luxury homes, a Porsche, and personal expenses. 

• Outlet upgrade: Tanger acquired Kansas’s only outlet center for $130M, expanding its portfolio with a 690K SF open-air retail asset that's 93% leased and anchored in a booming Midwest retail market. 

• Holiday hurdles: Retailers may see steady holiday sales, if they adapt to longer shopping seasons, inflation-weary consumers, and tariff-driven pricing pressures.

• Summer slowdown: Office visits fell in August due to summer travel and fewer workdays, though recovery momentum remains heading into September.

• Anchor lease: KKR signed a 132.5K SF lease at Boston’s International Place, more than doubling its local footprint and signaling renewed confidence in the city’s recovering office market. 

• Asset exit: Silverstein Properties and Metro Loft are marketing their 344K SF luxury residential building at 55 Broad Street in Manhattan’s Financial District, seeking over $500M. 

• Legal landing: Simpson Thacher is nearing a massive 700K SF lease at Extell’s Ikea-anchored tower at 570 Fifth Ave—marking NYC’s second-largest office lease of 2025.

• Island refi: KSL Capital Partners secured a $480M refinancing for two luxury Hawaiian resorts, unlocking $148M in equity while retaining ownership of the beachfront properties. 

• Development pause: Facing rising costs, softening demand, and staffing struggles, hotel owners are pausing or scaling back development plans. 

• Luxury lifeline: Lodging REITs face muted growth as demand softens and costs rise, but group bookings and luxury travel are holding firm, prompting a shift from acquisitions to share buybacks and capex reinvestment.

📈 CHART OF THE DAY