Rent growth slows, but optimism rises in select segments
CoStar Group has dialed back its near-term forecast for the United States multifamily sector, projecting a slight dip in national apartment rent growth and persistent vacancy rates through 2026.
The move comes as developers report a cautious uptick in confidence, but headwinds remain, especially for high-rise and condo projects.
CoStar’s updated outlook now expects national apartment rent growth to decline by 0.1% in the fourth quarter of 2025. That's a downward revision of 160 basis points from its previous estimate.
When rent growth slows, the potential returns for property investors decline. This may lead to fewer investors seeking mortgages to purchase rental homes, reducing overall mortgage origination volume in the investor segment.
Vacancy is set to hover at 8.2% through year-end before easing to 7.9% by the end of 2026.
“The revised forecast reflects a more measured view of near-term performance,” said Grant Montgomery, national director of multifamily analytics at CoStar Group.
“Still, a turning point is approaching. In the final quarter of 2025, renters are expected to occupy more units than are added to supply—a first since the third quarter of 2021. That shift should allow vacancy to begin receding in 2026, supported by a shrinking construction pipeline and steady renter demand,” Montgomery said.
The company’s analysis points to slower growth in employment, population, and household formation, factors that could delay absorption in oversupplied markets. Yet, limited for-sale housing inventory continues to keep many renters out of homeownership, propping up multifamily demand.
Developer confidence edges up, but challenges persist
The latest Multifamily Market Survey (MMS) from the National Association of Home Builders (NAHB) showed the Multifamily Production Index (MPI) rising to 46 in the third quarter, up six points year-over-year but still below the neutral mark of 50.
“We are seeing a degree of bifurcation in the multifamily market, as developers of low-rise market-rate and subsidized rental properties express increased optimism, while developers of mid- and high-rise properties and condominiums remain less confident,” said Debra Guerrero, senior vice president at The NRP Group and chairman of NAHB’s Multifamily Council.
“Significant challenges such as the current regulatory environment, rising construction costs and difficulties in securing project financing continue to affect the multifamily sector as a whole,” Guerrero said.
The MPI revealed that only garden and low-rise projects crossed into positive territory at 51, while mid- and high-rise units, despite a nine-point gain, remained in negative sentiment territory at 37. The subsidized segment rose to 55, and the built-for-sale (condominium) market climbed to 35.
Occupancy sentiment softens
On the occupancy front, the Multifamily Occupancy Index (MOI) dipped one point year-over-year to 74, its lowest in nearly three years, though still signaling overall positive sentiment. Garden and low-rise units slipped to 76, mid/high-rise units held at 66, and subsidized units dropped to 81.
As rent growth cools and vacancies stay high, the multifamily sector is adjusting. Some areas are seeing renewed optimism, but ongoing challenges especially for high-density projects mean developers will need to adapt as 2026 approaches.
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