Multifamily Market Softness Persists in South and West

Multifamily market faces high vacancies in South and West as new supply slows rent growth while Northeast and Midwest stay stronger.

August 8, 2025

Nina Dale

Large volumes of new apartments are keeping vacancies elevated in the South and West, while the Northeast and Midwest show stronger rent growth.
Stabilized vacancies remain lowest in the Northeast (3.5%) and highest in the South (8.3%).
Cap rates fell to 5.4% in Q2 2025 as valuations rose. Sales volumes increased from Q1 but stayed below last year’s level.
GSEs funded over half of all multifamily mortgage lending in the past year.

Key Takeaways

According to the NMHC, a flood of new apartment supply is reshaping the US multifamily market. The South and West face higher vacancies and weaker rent growth, while the Northeast and Midwest benefit from tighter supply.

Vacancy Trends

The Census Bureau reported a national vacancy rate of 8.8% for large apartment buildings in Q2 2025, up 60 basis points from last year. CoStar’s figure came in at 8.1%, 17 basis points higher than a year ago. Its stabilized vacancy rate held at 6.3%.

Regional differences in the multifamily market are stark. In Q2, the Northeast posted the lowest stabilized vacancy rate at 3.5%, while the South had the highest at 8.3%. The Midwest reached 5.8%, and the West came in at 5.7%. Record deliveries have widened the gap between total and stabilized vacancies.

US Apartment Total Vacancy Rate (5+ units)

Rent Performance

Effective asking rents rose 1.0% year over year, according to CoStar. RealPage recorded a similar 0.8% increase. The Midwest led growth with gains up to 3.4%, followed by the Northeast at up to 3.1%. The West barely grew, and the South showed flat or slightly negative results.

Construction Activity

CoStar data show multifamily starts down 25.2% from last quarter and 36.6% year over year. Declines occurred in every region. Completions rose 11.2% from Q1 but fell 25.8% compared with last year.

Census Bureau figures tell a different story. Permits and starts both rose from last year, suggesting some builders remain confident despite oversupply in parts of the country.

US Multifamily Starts and Completions (in 000s)

Absorption & Transactions

Net absorption jumped in Q2. RealPage counted 227,010 units absorbed, the highest trailing four-quarter total on record at 794,160 units. CoStar also reported quarterly gains, though annual absorption slowed.

Sales volume climbed 11.3% from Q1 to $35.1B. That figure is still 14.4% below last year’s second quarter. Cap rates fell 20 basis points to 5.4% as prices edged higher.

Financing Landscape

From Q1 2024 to Q1 2025, lenders extended nearly $90B in multifamily mortgage credit. GSEs provided $53.5B, over half the total. Banks sharply reduced activity, while life companies lent $13.5B. The CMBS market shrank.

Why It Matters

Markets with heavy supply are struggling to keep rents growing, while tighter regions see healthier gains. Lending patterns show GSEs filling the gap left by banks, underscoring their central role in today’s multifamily financing environment.