Can Las Vegas start building more apartments to meet a growing demand?

The multifamily industry could see a financing boom much like what happened when interest rates were cut to fuel economic activity during the pandemic, according to a new report from commercial brokerage Avison Young.

“Investors have been waiting on the sidelines and holding on to their capital due to high interest rates,” Giovanna Abraham, a market intelligence analyst with Avison Young, said. “Now that rates are coming down and are expected to continue to be cut next year, we will likely see more transaction activity to hit the multifamily sector in 2025.”

The Federal Reserve cut interest rates for the first time in years in September, slashing 50 basis points and then followed that up with a 25 basis point cut after the presidential election on Nov. 6. The feds are largely expected to make another cut this December in its final meeting of the year if economic data remains healthy.

Michael Albanese, a senior associate with Avison Young in Las Vegas, said he is seeing a pattern with how rate cuts impact the multifamily market.

“Data shows that historically the spike in transaction activity lags a significant cut by two to four quarters,” he said. “I don’t think it will be much different, except that this time around there is so much pent-up capital and investment appetite that this cycle will likely be condensed. I wouldn’t be surprised to see a significant increase in activity within six months of this last cut.”

Commercial multifamily brokers who spoke to the Las Vegas Review-Journal said the pipeline for new apartments units dries up dramatically after next year which could throw the market out of balance. Rental rates have dropped recently in the valley due to a glut of new supply hitting the market, however are still elevated compared to pre-pandemic levels.

How much it costs to borrow money is always going to control the bottom line and the overall market sentiment, Albanese said.

“The interest rate environment is going to be the biggest factor on the timing of capital being deployed. I think the sentiment is that rates will still go down in the coming months. In most cases when the Fed cuts the rate, the 10-year treasury (rate) drops as well, however, on this latest interest rate cut, we saw the treasury go back up and therefore true lending rates went up instead of going down,” he said. “It seems the anticipated timeline for lending rates to go down has been pushed back a little more than anticipated a few weeks ago.”

Now that the election is over and a clear winner and direction for the country and economy has emerged, Abraham said, the market should be dislodged from its stasis to some degree. Many forecasters and economist are predicting a Trump administration will key in on issues such as deregulation to spur market activity while cutting taxes for businesses and corporations allowing for more financing to become available.

Multifamily market outlook

Avison Young’s third quarter multifamily report shows that multifamily vacancies in the Las Vegas Valley have “stabilized” at 9 percent from earlier in the year, following a peak at the end of 2023 when vacancies were close to 10 percent brought on by an influx of new properties hitting the market. The report estimates that “with new construction slowing down and many projects nearing completion between 2025 and 2026, vacancy rates are expected to fall off.”

The local apartment market also saw its fourth consecutive quarter of positive absorption (people moving into new units), with 1,325 units absorbed in the third quarter despite “rising inventory and vacancies.” The report notes this is partially driven by the overall Sunbelt’s short-term flexible housing demographics related to the transient job markets, along with shifting housing trends due to rising mortgage rates.

Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.