Vacancy rates declined for a second straight quarter in Q2 2025 as absorption outpaced new supply—but rent growth slowed to 1.7% amid weaker consumer confidence, rising uncertainty, and a wave of new deliveries. Construction starts continue to fall, signaling tighter development conditions ahead.
Key Takeaways:
Demand Holds Strong: Over 116,000 multifamily units were absorbed in Q2 2025, keeping pace with last year’s near-record performance.
Supply Tapering Ahead: While deliveries rose 18% from Q1, the pipeline is thinning—now below 500,000 units nationally, the lowest since 2016.
Focus Shifts to Occupancy: Landlords are prioritizing keeping units full over raising rents. Occupancy improved slightly, but annual rent growth slowed to 1.7%.
Multifamily Vacancy Declines Again, Though Demand Momentum Eases
For the second straight quarter, U.S. multifamily net absorption outpaced new supply, marking the first back-to-back vacancy rate declines since 2021. Q2 posted the sixth-strongest absorption quarter since 2000, driven by resilient apartment demand. However, that strength was slightly tempered by weaker seasonal gains—suggesting early signs of softening as consumer sentiment wanes. Vacancy remains 200 basis points above the long-term average, and stabilized vacancy also sits elevated. While fundamentals remain solid, shifts in demand trends warrant close watch heading into the second half of 2025.
Construction Pullback Reshapes Supply Outlook
After years of elevated deliveries, the construction slowdown has firmly taken hold. Only 95,000 units were delivered in Q1, the lowest since late 2022 and down 25% YoY. Nationally, the construction pipeline has dropped to 545,000 units—its lowest level since 2018. Texas metros like Dallas, Austin, and Houston are leading this contraction, with nearly 60,000 fewer units under construction versus last year. Phoenix and Atlanta also posted double-digit declines. As a result, the supply-demand balance is beginning to normalize, setting the stage for further improvement in
Rent Growth Moderates as Owners Prioritize Stability
Rent growth slowed to 1.7% year-over-year in Q2 2025, reflecting a more cautious stance from property owners amid softening consumer sentiment, new supply, and tariff-related uncertainty. This marks the sharpest quarterly deceleration since 2023. While monthly rent gains weakened in May and June, high-occupancy markets like San Francisco, San Jose, Chicago, and New York continued to see above-average annual growth, suggesting fundamentals remain healthy in core regions.
Multifamily Development Cools as Financing Constraints Deepen
Multifamily construction has slowed sharply nationwide, with the pipeline falling below 500,000 units for the first time since 2017. Just 3.8% of total inventory is under construction—less than half of last year’s peak—reflecting tighter lending conditions and diminished new starts. Most major markets saw pipeline declines, led by Dallas/Ft. Worth (–22,000 units), New York, and Austin. With financing still constrained, development activity is expected to remain subdued in the near term.
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Outlook
Gateway cities are leading the multifamily recovery, fueled by renewed population growth and persistent housing shortages. Markets like New York, Chicago, Los Angeles, and the Bay Area are posting some of the nation’s lowest vacancies and strongest rent gains. Despite broader economic pressures, these urban hubs are well-positioned to sustain above-average performance into 2026.
