Turning the Corner in U.S. Multifamily: Demand Accelerates as Supply Slows

National Supply and Demand Outlook

1. Turning Point in Vacancy

   After more than three years of elevated completions outpacing absorption, overall U.S. apartment vacancy finally began to edge down in early 2025. Strong first-quarter absorption—nearly 130,000 units—contributed to a decline in the national vacancy rate, now hovering around 8.0%. Robust job growth and new household formation continue to support rental demand.

2. Delivery Slowdown

   Nationwide deliveries have fallen for three consecutive quarters, dropping around 30% in Q1 2025 compared with the same period in 2024. This slowdown reflects tighter financing conditions and increased caution among developers, who have struggled with longer lease-up periods and higher interest rates. By year’s end, completions are expected to wind down further, creating a more balanced environment across many metros.

3. Gradual Rent Growth Acceleration

   Overall rent growth, which had hovered at or just above 1% in recent quarters, is poised to accelerate in the second half of 2025. The supply slowdown, coupled with strong demand fundamentals, should sustain improved pricing power for landlords. Leading into 2026, many forecasters anticipate rent growth returning to an annual rate near 2.5%–3.0%.

   
   

Best-Performing Markets

1. Midwest Consistency

   Markets in the Midwest, including Chicago, Kansas City, and Detroit, have shown solid fundamentals. These areas experienced fewer construction surges and thus avoided the steep vacancy hikes seen in Sun Belt metros. In the first quarter of 2025, each posted above-average rent growth—often surpassing 3%—supported by gradual job gains and manageable new supply pipelines.

2. Select Northeast and Coastal Markets

   Despite historically high rents, places like Washington, D.C., Baltimore, and parts of the New York metro(including certain New Jersey submarkets) have shown moderate vacancy rates and stable or slightly above-average rent growth. These regions did not see the same barrage of new completions as high-growth metros in the South. Early 2025 data confirms that these “steady” markets are faring well due to limited supply expansions and sustained employment drivers (e.g., government, financial services).

3. Limited-Construction Markets

   Some smaller metros where new construction was historically tight—such as Pittsburgh—have also maintained healthy occupancy. Rent growth, while not always as dramatic as it can be in boom markets, remains reliably positive. Low turnover and minimal competition from new developments allow owners to steadily push rents upward.

   
   

Worst-Performing Markets

1. Austin’s High Vacancy

   Among major metros, Austin stands out for having some of the highest vacancies in the country—exceeding 15% overall and even higher (17%+) in top-tier, newly built units. Over the last few years, developers aggressively delivered thousands of apartments in response to strong in-migration, only to find lease-up efforts slowed by higher rents, economic uncertainty, and intensifying competition. This oversupply has weighed on rent growth, leading to multiple quarters of year-over-year declines.

2. Other Sun Belt Oversupply

   Several Sun Belt metros—including San Antonio, Phoenix, and select parts of Florida—experienced a similar pattern of new construction outpacing demand. While demand remains healthy by historical standards, the record volume of deliveries from 2022 to 2024 pushed vacancies well above their long-term norms, resulting in rent concessions and downward pressure on annual rent growth.

3. Localized Impact of Elevated Deliveries

   Cities like Raleigh and Jacksonville—both hot spots for new development—have also suffered from short-term imbalances. These metros are still adding a large number of units relative to their population bases. Vacancy rates, while not as severe as Austin’s, remain higher than historical averages and have dampened effective rent growth.

   
   

Key Takeaways and Outlook

1. Moderating Deliveries Aid Fundamentals

   As construction tapers, many of the hardest-hit metros (especially in the South and Southwest) should begin to see a decline in vacancy. This will, in turn, reduce concession usage and boost rent growth. Markets that have already peaked in vacancy, such as Jacksonville, Raleigh, and Atlanta, may see improvements by late 2025 or early 2026.

2. Potential for Broader Rent Acceleration

   The next several quarters could mark a broader rent rebound. With fewer units coming online, overall supply growth will be more closely aligned with absorption, allowing owners to regain pricing leverage.

3. Regional Disparities Will Persist

   Despite an overall national tightening, localized variations will remain. Metros that were relatively cautious during the recent building wave—particularly in the Midwest and parts of the Northeast—are expected to maintain the strongest occupancy levels and stable rent trends. Meanwhile, Sun Belt markets may continue wrestling with new-unit saturation well into 2025, even though many have entered a stabilization phase.

   
   

Conclusion

After a multiyear wave of new development, the U.S. multifamily sector is entering a crucial adjustment period. Overall fundamentals point to renewed balance, with strong demand supported by steady job gains and demographic trends. Nevertheless, some metros—particularly in the Sun Belt—are contending with oversupply and above-average vacancy, keeping rent growth temporarily subdued. On the other side, Midwestern markets and select coastal metros with limited new supply have fared far better, achieving continued rent gains and stable occupancies.

As the pace of construction cools nationwide, the majority of markets should see conditions tighten and rents pick up. By 2026, many local apartment sectors are expected to converge toward more sustainable vacancy levels. For investors and developers alike, understanding the depth of new deliveries, demographic shifts, and local economic drivers will be pivotal in gauging where opportunity—and risk—lie within the multifamily landscape.

April 16, 2025 by Michal Mohelsky, J.D., principal of MMCG Invest, LLC, multi-family feasibility study consultant

Sources: Statista, MMCG databases, CMBS, Loan Analytics