End of Declining Apartment Rents on the Horizon

After six months of steady declines, the March 2025 Apartment List National Rent Index has signaled a shift, returning to positive month-over-month rent growth. February saw a 0.3% increase, following the typical seasonal trends, and while overall rent prices are still negative at -0.4%, this suggests that the downturn may soon stabilize. According to Apartment List, this marks the third consecutive winter where seasonal rent reductions have been sharper than pre-pandemic norms.

The Current State of Apartment Rents

The national median rent has reached $1,375, reflecting a $4 increase from the previous month but still $5 lower than February 2024. Over the past 2.5 years, rental prices have declined by 4.6% (approximately $67 per month) from their peak in mid-2022. While rents have fluctuated since late 2022, this decline follows an unprecedented surge in rent prices in 2021 and early 2022. Despite this cooling trend, typical rent prices are still nearly 20% higher than in January 2021.

Key Market Trends

• 75 of the 100 largest U.S. cities experienced rent increases in February 2025.
• Year-over-year rent growth has turned positive in most major cities, indicating recovery.
• Sun Belt metros like Austin, Denver, and Raleigh saw the steepest declines due to a rapid increase in multifamily housing inventory.
• Year-over-year rent growth bottomed out at 1.4% in September 2023 but has since started to rise.
• Vacancy rates hit a record high of 6.9% in February 2025, surpassing the previous peak of 6.8%.

Supply and Demand: The Multifamily Boom’s Impact

Multifamily Housing Surge

The rise in vacancies can be attributed to an unprecedented boom in multifamily housing supply. In 2024, over 600,000 new multifamily units were introduced into the market—a 65% increase from 2022 and the highest level of new supply since 1986. While completions are expected to slow this year, 800,000 multifamily units are still under construction, meaning supply will continue to impact pricing trends.

Time on Market: A Key Indicator

Apartment List’s new Time on Market Index provides additional insights:

• The median time a rental unit remained on the market in February dropped to 36 days, compared to 37 days in January.
• This slight decline follows typical seasonal patterns, but it remains the longest February time-on-market reading in six years.
• Units are currently sitting vacant three days longer than in February 2024 and ten days longer than in February 2022, when the market was at its tightest.
• The growing number of vacant units and the increasing time spent unoccupied suggest that the surge in supply is outpacing demand in some regions.

The Outlook for Commercial Real Estate and Rental Prices

As the supply wave passes its peak, industry analysts predict that the era of declining rents may be ending. Although vacancies remain high, rising demand and a slowdown in new completions may help rebalance the market over the coming months. This shift will have broad implications for commercial real estate, particularly in sectors related to multifamily property investment and development.

Factors Influencing Future Rent Trends

• Continued population shifts: Urban migration trends and employment hubs will impact rent growth differently across regions.
• Interest rates & economic conditions: The cost of borrowing for developers affects the pace of new housing projects.
• Regulatory changes: Rent control laws and zoning reforms may influence pricing in certain areas.
• Work-from-home impact: The demand for suburban apartments vs. urban rentals continues to evolve post-pandemic.
• Affordability crisis: While rents have softened, they are still significantly higher than pre-2021 levels, which could push some renters into alternative housing options.

FAQs

1. Why did apartment rents decline over the past six months?

The decline was driven by an oversupply of new multifamily housing, seasonal rental market trends, and cooling demand compared to the post-pandemic boom.

2. Is the rent decline expected to continue in 2025?

While rents may remain soft in some areas, data suggests that the worst of the decline is over. A stabilization or slight increase in rents is expected as supply growth slows.

3. Which cities have seen the steepest rent drops?

Cities in the Sun Belt region, including Austin, Denver, and Raleigh, have experienced the most significant declines due to a surge in apartment construction.

4. How does this affect commercial real estate investors?

Investors in multifamily properties may face short-term challenges with higher vacancies, but long-term prospects remain strong as demand for rental housing continues to grow.

5. Will rent prices ever return to pre-pandemic levels?

Unlikely. While rent growth has cooled, the overall cost of housing remains elevated due to inflation, wage growth, and continued demand in key metropolitan areas.

Conclusion

The rental market is at a turning point. After a period of declines, apartment rents are showing signs of recovery as the supply wave crests. While vacancy rates remain high, and time-on-market is still elevated, a slowdown in new completions could help restore balance in the coming months. This shift has major implications for commercial real estate, signaling a potential stabilization for landlords, investors, and renters alike. Moving forward, regional dynamics, economic conditions, and policy changes will determine whether rents will rise gradually or stay relatively flat in 2025. For now, the data suggests that the period of declining apartment rents may finally be coming to an end.

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