Apartment market forecast stays positive in face of potential economic headwinds

Article originally posted on CoStar on June 12, 2025

The U.S. apartment vacancy rate finally peaked at the end of last year and is forecast to maintain downward momentum through 2025 and beyond.

An abundance of new developments in lease-up is expected to drive absorption in coming quarters, likely chipping away at the nation’s elevated overall vacancy rate. While rental demand is still growing at an above-average pace, supply additions are projected to fall about 45% this year based on a quickly thinning under-construction pipeline that should help vacancies recede.

The recent decline in overall vacancy is attributable to the higher-quality, four- and five-star apartment segment, where absorption has been strong enough to exceed supply growth. As a result, vacancies for four- and five-star apartments have already dropped 50 basis points from their 2024 year-end peak of 11.7% and are forecast to fall under 10% by the end of this year.

As vacancies compress, many markets are likely to see higher rents in coming quarters. Year-over-year asking rent growth is forecast to accelerate from 1.2% in the first quarter to 2.2% by the end of 2025. However, this forecast calls for overall rent growth in 2025 to come in 50 basis points lower than last quarter’s forecast due to weaker economic projections and a lack of acceleration in rent growth anticipated for the first quarter.

Economists have downgraded estimates for economic growth this year and next, including a reduction in hiring, which presents a downside risk to the forecast. While currently strong, multifamily demand could moderate if employment were to falter, delaying the absorption of the existing supply overhang in Sun Belt markets.

However, despite economic headwinds, the undersupplied U.S. housing market will probably sustain ongoing multifamily demand, as it did through the pandemic and the Great Recession of 2008-09.

Fiscal expansion in mid-2026 to early 2027 should boost the economy, but lower immigration inhibits the labor supply pool and employment growth projections through 2030. As a result, vacancy declines moderately through the five-year forecast, leading to tepid rent growth, averaging 2.7% annually through 2029, which would underperform historical gains.