Apartment Demand Rebounds, Vacancies Finally Fall

According to WSJ, after years of rising vacancies driven by a historic construction boom, the U.S. apartment market is showing signs of recovery.

The Bigger Picture

For the first time in three years, vacancy rates are holding steady as demand has climbed to its highest levels since 2021. This growth could give landlords more pricing power by next year, particularly as new apartment construction is set to slow down.

The recent shift follows a construction surge that added over 1.2M new apartments to the market over the past two years, according to CoStar. This unprecedented supply temporarily pushed vacancy rates higher but is now meeting rising demand, helping stabilize occupancy levels.

Rent Pressures

While rent growth has remained relatively flat over the past year due to the surge in new supply, a slowdown in construction could potentially allow landlords to raise rents again in 2025. 

According to CoStar, about 672K new units will be completed by the end of this year, but only half that number is projected for 2025, with even fewer in 2026. As long as conditions remain stable and homeownership remains out of reach for many, landlords may be able to raise rents soon.

Regional Variety

Certain markets have been affected more acutely by this trend than others. Coastal cities like NYC and Los Angeles, along with Midwest metros such as Indianapolis, have led the country in rent renewals, with 5% growth recorded in recent months. 

Meanwhile, Sunbelt cities that have been booming with new developments continue to face high vacancy rates and slower rent growth. Austin, for example, has the nation’s highest vacancy rate at over 15% when including new builds, as developers offer aggressive concessions to fill units.

As major employers increase in-office requirements, demand for urban rentals may rise even more, especially in coastal employment hubs. In Seattle, apartment owners are reporting higher leasing among Amazon (AMZN) employees preparing for the company’s five-day office attendance policy, which is set to begin in January.

Growing Confidence

With vacancy rates stabilizing, investor confidence in the apartment market is recovering. Sales of apartment buildings have grown for two straight quarters, especially in high-demand metros like Denver and San Francisco. 

Apartment owners are also benefiting from strong retention, as fewer renters are leaving the rental market to purchase homes, due to some of the most challenging home affordability conditions in decades.

Looking Ahead

If demand remains robust and new construction slows, apartment owners could see a stronger rental market in 2025. 

However, any rise in rents may put more pressure on federal and local policymakers to address housing affordability—a prominent election issue that could impact rent regulations for years to come.