The first half of 2025 began on a hopeful note for multifamily property owners, with apartment rents continuing their pattern of year-over-year gains, averaging just above 1%.
However, as the year progressed, employment conditions softened, and a lingering supply overhang continued to weigh on rents.
The average apartment rent change has barely managed to stay in positive territory, with apartment rents rising nationally by an average of 0.2% as of mid-December. This shift underscores the multifamily sector’s vulnerability to both labor market trends and excess inventory, setting the stage for a cautious outlook as the market seeks to rebalance heading into 2026.
After several years of supply outpacing demand, the U.S. multifamily market enters 2026 at a potential turning point. Over the past year, vacancy rates have remained elevated, and rent growth has been subdued, as the completion of new units has continued to exceed absorption, resulting in a negative net change in occupancy.
Yet, with the development cycle now winding down, the sector may be on the cusp of rebalancing — creating new opportunities and risks.
After multifamily construction peaked in 2024, reaching a 40-year high with the addition of more than 700,000 apartments in a single year, completions in 2025 have decreased by about 20%. The construction pipeline is projected to continue to decline in 2026.
Should economic growth hold steady and renter confidence persist, this shift in supply and demand dynamics is expected to support incremental rent increases and a gradual return to rental rate growth across a majority of markets.
Construction is moderating, but will demand remain resilient?
Multifamily vacancy rates continued to climb through 2025, finishing the year near 8.5% as new supply outpaced demand. Rent growth has remained modest, with national rents rising by an average of 0.6% in the third quarter and hovering near zero by year-end.
The question for 2026: Will moderating completions and steady demand finally reverse these trends?
If absorption continues to reduce the elevated vacancy, the national vacancy rate could gradually decline over the course of 2026. As vacancy eases, rent growth may resume in the second half of the year. However, the pace of recovery will depend on local supply dynamics, labor market strength and the ability of overbuilt markets to absorb excess apartment inventory.
Asset quality segmentation remains a key theme. In 2025, mid-priced three-star-rated apartments led rent growth, finishing the year with an average increase of 0.3%. These units were less affected by oversupply than top-tier four- and five-star-rated properties, which saw rents decline by an average of 0.4%. In 2026, as completions dissipate, an inversion in rental rate fortunes is expected, with rent growth in four- and five-star-rated apartments likely to surpass that of three-star units.
Performance varies widely by region
Regional performance continues to vary widely. In 2025, Midwest and Northeast markets posted the strongest rent gains, with cities such as San Francisco and Chicago outperforming the national average, while Sun Belt markets, including Dallas-Fort Worth and Phoenix, struggled with oversupply and declining rents.
While lagging regions are projected to see improvement in 2026, these dynamics are expected to persist, with markets facing limited new construction and steady demand best positioned for rent growth, while those with lingering supply overhang may lag in terms of rent performance.
The year ahead has the potential to mark a turning point for the multifamily sector, with conditions conducive to incremental rent improvement and a gradual return to rental rate growth. However, the path forward will be shaped by local market dynamics and broader economic forces, making it a year to watch closely.