The latest analysis from CoStar says the oversupply of apartments in some markets will continue to be absorbed, but that the vacancies will last longer than first forecast.
CoStar, a commercial real estate information company, projects the national apartment vacancy rate will hold at 8.2% through year-end 2025. Then the vacancy rate is expected to gradually improve to about 7.9% by the end of 2026. CoStar describes the decline to 7.9% as reflecting a more modest draw-down of oversupply than previously hoped.
“The updated forecast reflects a more cautious view of the market’s near-term performance. Average rent growth is now expected to turn negative, slipping from 0.6% in the third quarter to a projected -0.1% in the fourth quarter of 2025 — a downward revision of 160 basis points from last quarter’s forecast,” the report says..
The current tariff policy and weakened labor market are creating headwinds for multifamily
GlobeSt reports, “Lower immigration is expected to constrain the labor force and weigh on employment growth through 2030, reducing long-term demand for rentals,” CoStar stated.
What this means for investors is that the future may hold only a modest drop in the vacancy rate over the next five years, along with rent growth averaging just 1.5% a year, below historical levels.
“The balance of risks to the revised forecast remains tilted to the downside,” CoStar cautioned. Four and five-star apartments are likely to be protected, since absorption has already exceeded supply growth and there is strong demand for equivalent high-quality multifamily developments in the lease-up phase.
Their average vacancy rate fell by 90 basis points from 11.9% toward the end of 2024 to 11% in 3Q 2025. And a further 30 basis points of decline by year-end 2025 is projected, as stabilized vacancy is expected to peak.
But the recovery is not helped by the current tariff policy and a weakened labor market. “Lower immigration is expected to constrain the labor force and weigh on employment growth through 2030, reducing long-term demand for rentals,” CoStar stated.
Read the full report on GlobeSt here.
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