Apartments Are A Hot Commodity, But Rent Growth Doesn't Show It

Demand for multifamily is high as landlords enter the slower leasing season, with units being taken off the market at near-record speed, suggesting a shift in momentum landlords have awaited all year.

But despite promising absorption numbers, vacancy remains elevated at around 9%, and rent growth is stifled, according to Cushman & Wakefield.

And while interest rates have kept potential homebuyers sidelined, mortgage rates have reached their lowest level in more than a year, driving newcomers to the market and away from renting. 

“Operators are prioritizing occupancy and retention over rate growth, especially in markets facing heavier supply pressure,” said Jordan Kabbani, managing director of investment strategy and research at Greystar. 

Tenants absorbed more than 100,000 units in each of the last three quarters, putting 2025 on track to be the third-strongest year for absorption since 2000, according to Cushman. But roughly 600,000 new units were delivered in 2024, the most since 1986.

“We’ve delivered more units than at any time in history. We need time for the market to catch up and lease up those units,” said Sam Tenenbaum, Cushman & Wakefield head of multifamily insights.

Prices are still much higher than they were prepandemic, but asking rents were up 1.5% year-over-year in the third quarter, according to Cushman, a slowdown from 2.2% annual growth tracked earlier in the year.

Apartment List, which tracks effective rents, shows them actually falling by 0.8% year-over-year in September, to $1,394 per month.

CBRE projected last year that multifamily vacancy would be 4.9% and rent growth would reach 2.6% by the end of 2025.

The year's steady absorption shows that renter demand has proven resilient, partially because of previously elevated interest rates that kept would-be homebuyers out of the market.

“New renter demand has been greatly buoyed by the lack of affordability in the for-sale housing market,” said Lee Everett, executive vice president and head of research and strategy at Cortland.

Home prices have increased slightly nationwide, but September’s interest rate cut, with two more expected this year, placed mortgages once again in reach for a broader swath of the population, including some younger buyers who have rented until now.

The interest rate on a 30-year mortgage reached 6.19%, according to Freddie Mac data released Thursday, down from 6.54% a year ago.

More homes are entering the market, and sales increased by 4.1% year-over-year in September, according to new data from the National Association of Realtors. First-time buyers were a big part of that increase, making up 30% of the month’s sales. In September 2024, first-time buyers accounted for 26% of home sales.

There are some signs of hope for landlords, though. The Bay Area occupies a familiar spot as a national leader in rent growth, with a 7.8% annual gain, according to Cushman. Neighboring San Jose clocked a 5.2% increase, followed by Chicago and New York.

“We're starting to see some vacancy rates crest in some of these markets,” Tenenbaum said. “It's not everywhere. We're not seeing vacancy rates go from 10% to 4% ... but we're no longer seeing significant increase after significant increase in vacancy.”

The Sun Belt, on the other hand, carries an 11% vacancy rate for apartments, flat compared to a year ago. The construction wave in the Sun Belt and nationwide has crested, leaving some hope for lower vacancy and higher rents in the coming months, according to Cushman.

New deliveries totaled 109,000 in the third quarter, down 27% year-over-year, and high construction costs are a deterrent to starting new projects.

Kabbani said he expects the slowdown in new starts and permits to shift supply from a headwind to a tailwind over the next several years, with deliveries headed for a meaningful decline through 2026 and 2027. 

That will set the stage for a tightening of vacancy rates, followed by a steady growth in rent as supply diminishes. Industry projections suggest national rent growth could average around 3% in 2026, with potential for stronger gains of more than 4% if demand remains healthy and vacancy falls below long-term averages.

“We're not filling the funnel up as quickly as we're emptying out the funnel,” Tenenbaum said. “So construction activity overall is down 50% from the peak.”