State of the U.S. Multifamily Market: Mid-Year 2025

Strong Renter Demand Fueling Multifamily Recovery

Multifamily operators continue to face challenging market conditions as of mid-2025, but a narrowing supply–demand gap has set the stage for accelerating rent growth in the quarters ahead.

“Underlying multifamily demand remained healthy in the first half of 2025,” said Connor Devereux, CoStar director of market analytics, in a recent webinar for Apartments.com.

Devereux offered an in-depth analysis of the key trends shaping the multifamily market as of July 2025.

Above-average absorption meets slowing supply pipeline

Renter demand remained strong in the first half of the year, reaching 268,000 units of net absorption. While this total fell short of last year’s record-setting total, it outpaced the pre-pandemic average for the same period by 35 percent.

At the same time, the wave of new supply has been slowing. This year’s completion of 270,000 new units in the first two quarters marked a drop of 25 percent compared to the same period last year.

Despite the dramatic slowdown in new supply additions, this year’s net completions remain elevated relative to pre-pandemic averages.

Rent growth remains subdued as vacancy plateaus

Rent growth has hovered around 1 percent for nearly two years. In the second quarter, rent growth decelerated slightly to 0.9 percent year over year. This falls short of the pre-pandemic average of 3 percent and well below the pandemic-era peak at over 9 percent in 2022.

Vacancy has also stayed relatively constant, remaining in the low 8 percent range for the last year.

“If demand holds, a modest improvement in vacancy could be in store in the second half of the year,” Devereux said.

Concession use remains high, as new construction properties struggle to lease up in an oversupplied market.

The top price point faces the greatest pressure, as these properties have been overrepresented in new deliveries. These luxury properties, known as four- and five-star buildings in CoStar’s rating system, averaged rent growth of 0.5 percent in the second quarter.

In contrast, lower priced properties have seen asking rents rise more significantly. The one- and two-star class outperformed the national average at 1.7 percent, while three-star properties posted 1 percent rent growth, in line with the national average.

Oversupplied Sun Belt continues to bear the brunt of record-high development

Since late 2019, total inventory for the Sun Belt region has skyrocketed. The number of multifamily units increased by 24 percent, compared to 16 percent for major markets nationwide.

The aggressive construction pipeline has left the region’s major markets with double-digit vacancy and declining rents. Rent growth in the Sun Belt, which fell to negative 1 percent in the second quarter, has remained negative for two years.

Thirteen of the 15 weakest markets in terms of rent growth are in the Sun Belt, with Austin continuing to face the greatest decline in asking rents.

In contrast, the Midwest and Northeast retain their recent advantage, thanks to limited supply additions in these markets.

Within the Midwest, Chicago has led the rent growth charts with 3.8 percent rent growth and 4.7 percent vacancy. Other high-performing Midwest markets include Cincinnati, Pittsburgh, Cleveland, Kansas City, and Detroit.

Other strong performers in the second quarter were New York, San Francisco, San Jose, and Norfolk. These markets maintained low vacancy and posted rent growth well above the national average.

Challenging conditions expected to ease in the quarters ahead

As the supply–demand continues to shrink, multifamily owners and operators are expected to see relief, though the recovery will be gradual. Vacancy is likely to fall below the 8 percent mark by the end of the year, and rent growth is projected to accelerate to 1.8 percent.

The Midwest, Northeast, and low-priced properties will lead the recovery, thanks to a healthier balance between supply and demand. Recovery will be slower in the oversupplied Sun Belt and four- and five-star class.

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CoStar is the industry-leading source for information, analytics, and news about all areas of commercial real estate. Whether you’re an owner, investor, or apartment operator, you’ll find in-depth analysis from Connor Devereux and other experts to help you stay on top of the latest trends in the multifamily market. Learn more about CoStar.