Multifamily rent growth continues to fall below pre-pandemic levels, despite vacancy rates stabilizing over the past year. This phenomenon is likely due to a large amount of new supply that has been completed but not yet leased, according to a CBRE analysis.
Reported vacancy rates typically do not include newly built properties in the initial lease-up phase until they become stabilized with at least 85% occupancy. This better reflects long-term income potential, the analysis said.
When construction deliveries are moderate, pre-stabilized property data would not materially change the reported vacancy rate. However, a deluge of pre-stabilized properties, like those the market has seen in recent years, creates an elevated number of unoccupied units that puts downward pressure on rent growth averages, CBRE said.
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If pre-stabilized new properties had been included in market statistics from 2015 to 2019, the total vacancy rate would have been about 60 basis points higher than reported, coinciding with average annual rent growth of 2.7% during that period. For the first quarter of this year, the glut of pre-stabilized properties resulting from the recent construction boom would boost total vacancy by 1.5 percentage points and has limited year-over-year rent growth to only 0.9%, according to the analysis.
Rent growth variation is impacted by regional differences in new supply and the number of unoccupied, pre-stabilized units. The South Central, Mountain and Southwest regions all have above-average reported vacancy rates and the highest total vacancy when including unoccupied pre-stabilized units in buildings that are in initial lease-up. Consequently, these regions are all experiencing negative rent growth. On the other hand, more typical construction delivery and lease-up trends have generated positive rent growth in the Midwest, Northeast and Pacific regions, said CBRE.
Net absorption, which has stood at record levels recently, would be even stronger if leasing activity in pre-stabilized units were included. Overall net absorption last year was 545,000 units but would have been 655,000 units if leasing activity in pre-stabilized buildings had been included, said the report.
Oakland provides an example of the likely future path for markets with high pre-stabilized vacancy. The market experienced one of the highest levels of multifamily construction before 2020, but the pandemic led to significant net out-migration. The total vacancy rate including pre-stabilized properties was nearly double the average for stabilized assets, and as a result, Oakland recorded negative 7.7% year-over-year rent growth in Q1 2021.
As these pre-stabilized units were absorbed and total vacancy receded to a more typical level, rent growth turned positive, at 0.3% during the first quarter of 2025. CBRE noted the vacancy rate for stabilized properties was steady at 4.8%.
“Like Oakland in 2021, some markets today are taking longer to achieve positive rent growth because of the effect of new properties that are in the initial lease-up phase,” said CBRE. “Considering this, we expect rent growth to turn positive in most high-supply markets by the end of this year.”
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
