Apartment renters are finding sweeter deals in the Metro Atlanta market.

As we near 2025, recent record levels of multifamily construction and high vacancy sit against continued strong demand for apartments. There is an increasing risk of renter defaults and renter fraud, as well as evolving demographics and a varying supply-demand gap across the country.

All these factors mean it is more important than ever for operators and developments to understand what the coming year could bring to their individual markets, said TheGuarantors Senior Vice President of Sales, New York Metro, Jesse Schmidt, who oversees partnerships with many of the largest multifamily owners and operators in the Tri-State area.

“There’s no doubt that on the face of it, strong demand for multifamily points to a positive 2025 for the industry,” he said. “However, there are other factors at play. If operators don’t focus on efficiency and the quality of tenants, the overall buoyant market could present challenges.”

Bisnow spoke to Schmidt and TheGuarantors Senior Vice President of Sales and Revenue Aaron Victorson, who has 12 years of experience in growth in the rental housing industry, about their top five predictions for multifamily in 2025 and how to get ahead.

One: Operators Will Still Face Record Levels Of Supply  

More than 500,000 new multifamily units are expected to be completed across the U.S. by the end of 2024, a near 40-year high. While this is widely considered the peak of new construction and fewer homes will be delivered in 2025, this level of supply has pushed up vacancy rates considerably. 

Though metro areas such as New York have better absorbed new supply, the influx of apartments in many areas of the Sun Belt are yet to be absorbed. Much of the new supply in the Sun Belt consists of higher-end properties, which have more finite demand than some realize, Schmidt said. Here, vacancy rates have risen by as much as 300% to 400%.

“This puts a lot of pressure on operators to stabilize new assets and maintain occupancy in older assets,” he said. “Absorption of these units will extend into the first half of 2025. The struggle is there are fewer high-paying jobs in tech and finance, as well as slowing employment growth across the country.”

The result is that operators are having to work harder to find qualified renters, Victorson said. In Phoenix, there is a risk that repealing CHIPS and Science Act funding following the result of the general election could undermine the job assumptions developers baked into projects.

“In some areas of the Sun Belt such as Phoenix where there has been so much development, operators are trying to maintain above-budget occupancy by lowering their qualification standards,” he said. “We’ve seen a real drop in the average credit quality of applicant referrals.”

Instead of lowering standards, operators should look to solutions such as TheGuarantors’ Rent and Deposit Coverage, Victorson said. Covering the risk of renter defaults widens the pool of potential renters for an operator and gives them the best chance of lowering vacancy rates in 2025. 

Two: As Rents Rise, So Could Tenant Defaults

In markets where new supply is being absorbed, rent growth for middle-income homes is predicted to accelerate in 2025. However, rising costs for consumers and the growing rent-wage gap could increase the risk of tenant defaults, Victorson said. TheGuarantors is already finding that some potential renters who received a conditional approval a year ago wouldn’t today. 

“It’s a kind of false occupancy – units are being filled by people who can’t pay rent in the long term,” he said. “Consumers are maxing out credit cards to rent a place, which could mean operators are sitting on a default bubble.”

The use of concessions to fill vacancies is exacerbating the problem, Schmidt said. For example, offering two or three months of free rent could bring in a tenant who can’t afford the full rent in year one or at renewal. 

“An operator could end up with 100% turnover because no one will be able to afford the renewal, or tenants could default,” he said. “Operators need to limit concessions and find applicants that can afford the unit, as this is what will drive stronger retention and a more sustainable property.”

Three: New Types Of Renters Will Have Different Needs

The demographics of renters is evolving, Schmidt said. The pandemic and growth of remote working meant people were able to consider moving to an outer metro area, for example. 

The number of freelancers is growing — people who may not look like qualified renters on paper but can be quality tenants. This adds to the challenge that many operators still turn down potential quality renters because they don’t appear so on paper, including recent graduates and non-U.S. citizens.

Slowing wage growth means more middle-income housing is required than higher-end. Divorce rates among people aged over 55 have doubled since 1990, while Gen Z is predicted to be the largest renter demographic by 2030.

This shift in what people are looking for, and how much they have to spend, means operators need to consider more carefully how they position properties, Schmidt said. 

“With the continued evolution of remote working, renters are seeking out neighborhoods where they can truly enjoy their time outside of work,” he said. “They’re less focused on their commute if they only need to be in the office two days a week. Operators need to consider creating a community both inside and around a property.”

Victorson said that with less money in their pockets, renters are increasingly looking to the long term and operators need to position rent packages that deliver that.

“A cheaper short-term offer including concessions doesn’t appeal so much anymore,” he said. “Renters want to keep costs low, which reflects the state of consumer finance. Operators need to optimize for economic occupancy even if it means rent growth is a bit flat.”

Four: Operators Will Still Need To Tackle Rising Costs 

Though vacancies will drop as supply slows down, this could take until the end of 2025, Victorson. This means any benefit to net operating income may not be felt until 2026.

Total operating expenses for multifamily operators have risen by 7.1% in the year to January 2024, including a 27.7% rise in insurance premiums. Operators will still need to find efficiencies in the coming year.

“There’s been a lot of great work done with centralization and standardizing roles in multifamily to make them simpler and more efficient to reduce [operating expenses]” he said. “At the end of the day, it comes down to understanding your business financially and looking at where you can and cannot tighten margins.”

Operators also need to reduce the impact of tenant defaults and vacancy loss, Schmidt said. TheGuarantors’ product suite helps operators minimize bad debt, boost occupancy and generate ancillary income.

“Our Rent Coverage product bridges the gap for people who fall just short of qualification standards, while protecting net operating income on the back end,” he said. “Our Zero-Gap Renters Insurance helps ensure compliance across all units in an operator’s portfolio and provides a tenant liability waiver for tenant-caused accidents. Overall, these products help operators maximize income.”

Five: Technology Will Tackle Renter Fraud 

Renter fraud continues to increase nationwide but particularly in areas such as the Sun Belt where multifamily operators have loosened their criteria to fill apartments, Victorson said. TheGuarantors has seen renter fraud increase by 10% to 15% since the summer, while 93.3%  of the National Multifamily Housing Council experienced renter fraud in 2023. 

“Fraud is constantly evolving with technology and we can’t assume that measures we put in place 18 months ago are still going to address the problem today,” he said. “We have to keep a dynamic eye on the market and the risks coming in. The higher rents are, the greater the pressure on consumers to commit fraud.”

To combat fraud, operators are increasingly using TheGuarantors’ preferred partner VeriFast, Schmidt said. This holistic fraud detection and income verification solution automates resident screening by letting renters quickly and safely share their banking, payroll, tax and government ID information during the application process.

In cases where fraudulent renters successfully secure an apartment and then default, operators who use TheGuarantors are insured against unpaid rent, offering an additional layer of financial protection, he said.

“Partnerships and solutions such as these are now vital for operators,” Schmidt said. “It means their own teams can focus on doing a great job running properties. While we expect 2025 to be a great year for multifamily, having the right tools in place will help them to navigate challenges.”

This article was produced in collaboration between TheGuarantors and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.