The Key Economic Drivers of Multifamily Real Estate in 2025

Multifamily real estate remains one of the most resilient asset classes, but its performance is deeply tied to economic conditions. In 2025, five key economic drivers are shaping rental demand, rent growth, and property valuations: employment and income growth, population and migration trends, rental vacancy rates, interest rates, and inflation. Understanding how these factors influence multifamily investment decisions can help investors identify the most promising markets and mitigate risks. Below, we break down each driver, its impact on rents and prices, and how it plays out in the Canadian and US markets.

Employment & Income Growth

Renters' ability to pay rent is directly tied to job stability and wage growth. In markets with strong employment, demand for rental housing rises, allowing landlords to increase rents. Conversely, high unemployment leads to greater vacancies and rent stagnation. Historically, a 1% increase in median income has been linked to a 2-3% rise in rents and a proportional increase in multifamily valuations due to higher Net Operating Income (NOI).[1]

Examples in 2025

• Canada: Toronto and Vancouver remain employment powerhouses, especially in finance and technology. However, Alberta’s oil-reliant economy has seen volatility in rental demand due to fluctuating energy sector employment.

• United States: Austin, TX, and Nashville, TN, continue to see job growth in tech, healthcare, and finance, leading to steady rent increases. Conversely, cities like San Francisco, which face tech layoffs, are experiencing softer rent growth.

Population & Migration Trends

Growing populations and migration patterns directly impact housing demand. Markets with strong in-migration (people moving in) see rising rents and property appreciation, while markets with out-migration struggle with vacancies and declining rents. For example, a 1% population increase in a metro area can drive 2-4% annual rent growth, assuming supply constraints [2]

Examples in 2025

• Canada: Calgary is experiencing a resurgence as interprovincial migration from Ontario and British Columbia increases, driven by affordability concerns. Meanwhile, Montreal has seen an influx of international students and tech workers, supporting rental demand.

• United States: Florida cities (Tampa, Orlando) and Texas metros (Dallas, Houston) continue to attract migrants from high-cost states like California and New York. Rent growth in these cities is outpacing the national average.

Rental Vacancy Rates & Inventory Levels

Vacancy rates measure rental supply relative to demand. A low vacancy rate (<5%) indicates a tight market where rents can be raised. A high vacancy rate (>7%) suggests excess supply, leading to rent stagnation or declines. Historically, a 1% drop in vacancy rates is historically correlated with a 3-5% increase in rents, boosting NOI and property values. [3]

Examples in 2025

• Canada: Toronto and Vancouver continue to face tight rental markets, with vacancy rates hovering around 2%, keeping rents elevated. Edmonton, however, has experienced an increase in rental construction, leading to rising vacancy rates and softer rent growth.

• United States: New York City saw an increase in rental supply post-COVID, leading to higher vacancy rates in some boroughs. However, Miami’s tight supply has kept vacancy rates below 4%, allowing for aggressive rent growth.

Interest Rates (Cap Rate Spread vs. Treasury Yields)

Multifamily properties are valued based on cap rates (NOI / Property Price). Investors compare cap rates to 10-year Treasury yields to assess relative returns. When interest rates rise, cap rates tend to expand, reducing property values. Here, a 1% increase in Treasury yields typically lowers multifamily property values by 5-7%, assuming stable NOI.[4]

Examples in 2025

• Canada: The Bank of Canada’s rate hikes have similarly put downward pressure on valuations, particularly in markets with high investor speculation, like Vancouver. However, cities with strong rental demand, like Montreal, have been more resilient.

• United States: The Federal Reserve’s interest rate hikes in 2023-2024 have led to cap rate expansion, especially in secondary markets, softening multifamily prices. However, gateway cities with strong rental demand (New York, Los Angeles) have seen more stability.

Inflation & Rent Growth

Multifamily real estate serves as an inflation hedge since landlords can increase rents in response to rising prices. However, if inflation outpaces wage growth, affordability declines, leading to higher vacancies and rent stabilization. A 1% rise in CPI has historically been linked to 1.5-2% rent growth, though the effect varies based on wage trends and local housing supply. [5]

Examples in 2025

• Canada: Rent controls in provinces like Ontario have limited landlords’ ability to adjust rents with inflation, causing affordability pressures. However, in Alberta, where rent control is minimal, rents have tracked inflation more closely.

• United States: Inflation pressures have eased compared to 2022-2023, but markets with high housing shortages (Phoenix, Charlotte) continue to see rent increases outpacing general inflation.

Where Are the Best Multifamily Opportunities in 2025?

Markets with strong job growth, in-migration, and tight supply remain the best bets for multifamily investors. In the U.S., Texas, Florida, and select Midwest cities offer strong fundamentals. In Canada, Calgary, Montreal, Halifax, and parts of Ontario outside Toronto are attractive due to lower supply constraints and high rental demand.

Investors should monitor interest rates and inflation trends closely, as they directly impact cap rates and rent affordability. While high rates in 2025 have put downward pressure on valuations, strong demand fundamentals in key cities make multifamily real estate a resilient investment for the long term.

[1] National Association of Realtors, CBRE Research.

[2] Urban Land Institute, Harvard Joint Center for Housing Studies.

[3] CoStar, RealPage Analytics.

[4] Federal Reserve, Bank of Canada, Moody’s Analytics.

[5] U.S. Bureau of Labor Statistics, Canada Mortgage and Housing Corporation.